UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2004.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to .
Commission file number 1-8400.
AMR Corporation
(Exact name of registrant as specified in its charter)
Delaware 75-1825172
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (817) 963-1234
Not Applicable
(Former name, former address and former fiscal year , if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2). Yes X No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $1 par value - 160,829,767 shares as of October
15, 2004.
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and nine months
ended September 30, 2004 and 2003
Condensed Consolidated Balance Sheets -- September 30, 2004 and
December 31, 2003
Condensed Consolidated Statements of Cash Flows -- Nine months
ended September 30, 2004 and 2003
Notes to Condensed Consolidated Financial Statements -- September
30, 2004
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Revenues
Passenger - American Airlines $3,838 $3,805 $11,411 $10,743
- Regional Affiliates 488 399 1,413 1,112
Cargo 149 135 452 409
Other revenues 287 266 828 785
Total operating revenues 4,762 4,605 14,104 13,049
Expenses
Wages, salaries and benefits 1,696 1,693 5,039 5,660
Aircraft fuel 1,056 701 2,781 2,077
Depreciation and amortization 317 345 963 1,027
Other rentals and landing fees 295 302 901 891
Commissions, booking fees and
credit card expense 288 281 863 796
Maintenance, materials
and repairs 265 223 741 641
Aircraft rentals 152 165 458 532
Food service 145 160 421 460
Other operating expenses 593 594 1,775 1,863
Special charges (credits) (18) (24) (49) 77
U. S. government grant - - - (358)
Total operating expenses 4,789 4,440 13,893 13,666
Operating Income (Loss) (27) 165 211 (617)
Other Income (Expense)
Interest income 19 20 47 41
Interest expense (219) (198) (648) (580)
Interest capitalized 22 17 60 54
Miscellaneous - net (9) (3) (44) (15)
(187) (164) (585) (500)
Income (Loss) Before Income Taxes (214) 1 (374) (1,117)
Income tax - - - -
Net Earnings (Loss) $ (214) $ 1 $ (374) $(1,117)
Basic and Diluted Earnings
(Loss) Per Share $ (1.33) $ - $ (2.33) $(7.08)
The accompanying notes are an integral part of these financial statements.
-1-
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
September 30, December 31,
2004 2003
Assets
Current Assets
Cash $ 117 $ 120
Short-term investments 3,018 2,486
Restricted cash and short-term investments 481 527
Receivables, net 903 796
Inventories, net 519 516
Other current assets 262 237
Total current assets 5,300 4,682
Equipment and Property
Flight equipment, net 15,315 15,319
Other equipment and property, net 2,399 2,411
Purchase deposits for flight equipment 352 359
18,066 18,089
Equipment and Property Under Capital Leases
Flight equipment, net 1,107 1,284
Other equipment and property, net 81 87
1,188 1,371
Route acquisition costs and airport
operating and gate lease rights, net 1,231 1,253
Other assets 3,476 3,935
$ 29,261 $29,330
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable $ 1,043 $ 967
Accrued liabilities 2,029 1,989
Air traffic liability 3,257 2,799
Current maturities of long-term debt 647 603
Current obligations under capital leases 148 201
Total current liabilities 7,124 6,559
Long-term debt, less current maturities 12,488 11,901
Obligations under capital leases, less
current obligations 1,100 1,225
Pension and postretirement benefits 4,733 4,803
Other liabilities, deferred gains and
deferred credits 4,130 4,796
Stockholders' Equity (Deficit)
Preferred stock - -
Common stock 182 182
Additional paid-in capital 2,536 2,605
Treasury stock (1,325) (1,405)
Accumulated other comprehensive loss (782) (785)
Retained deficit (925) (551)
(314) 46
$ 29,261 $29,330
The accompanying notes are an integral part of these financial statements.
-2-
AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
Nine Months Ended September 30,
2004 2003
Net Cash Provided by Operating Activities $ 803 $ 593
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (773) (468)
Net increase in short-term investments (532) (720)
Net decrease in restricted cash and
short-term investments 46 243
Proceeds from sale of equipment and property 59 50
Proceeds from sale of interest in Worldspan - 180
Other (12) 22
Net cash used by investing activities (1,212) (693)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (575) (701)
Proceeds from:
Issuance of long-term debt 975 855
Exercise of stock options 6 -
Net cash provided by financing activities 406 154
Net (decrease) increase in cash (3) 54
Cash at beginning of period 120 104
Cash at end of period $ 117 $ 158
Activities Not Affecting Cash
Flight equipment acquired through
seller financing $ 18 $ 649
Capital lease obligations incurred $ 10 $ 131
Reduction to capital lease obligations
due to lease modifications $ - $ (127)
The accompanying notes are an integral part of these financial statements.
-3-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, these financial
statements contain all adjustments, consisting of normal recurring
accruals unless otherwise disclosed, necessary to present fairly the
financial position, results of operations and cash flows for the
periods indicated. Results of operations for the periods presented
herein are not necessarily indicative of results of operations for the
entire year. The condensed consolidated financial statements include
the accounts of AMR Corporation (AMR or the Company) and its wholly
owned subsidiaries, including (i) its principal subsidiary American
Airlines, Inc. (American) and (ii) its regional airline subsidiary,
AMR Eagle Holding Corporation and its primary subsidiaries, American
Eagle Airlines, Inc., Executive Airlines, Inc. and AMR Leasing
Corporation (collectively, AMR Eagle). For further information, refer
to the consolidated financial statements and footnotes thereto
included in the AMR Annual Report on Form 10-K for the year ended
December 31, 2003 (2003 Form 10-K). Certain amounts have been
reclassified to conform with the 2004 presentation.
2.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. 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 amended by Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." The following table
illustrates the effect on net earnings (loss) and earnings (loss)
per share amounts if the Company had applied the fair value
recognition provisions of SFAS 123 to stock-based employee
compensation (in millions, except per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Net earnings (loss), as reported $(214) $ 1 $(374) $(1,117)
Add (Deduct): Stock-based
employee compensation
expense included in
reported net earnings (loss) (7) 6 10 11
Deduct: Total stock-based
employee compensation
expense determined under
fair value based methods
for all awards (9) (23) (59) (54)
Pro forma net loss $(230) $ (16) $(423) $(1,160)
Earnings (loss) per share:
Basic and diluted -
as reported $(1.33) $ 0.00 $(2.33) $ (7.08)
Basic and diluted -
pro forma $(1.43) $(0.10) $(2.64) $ (7.34)
3.As of September 30, 2004, the Company, through its airline
subsidiaries, had commitments to acquire: 10 Embraer regional jets
in 2004; 36 Embraer regional jets in 2005; two Embraer regional
jets in 2006; and an aggregate of 47 Boeing 737-800s and nine
Boeing 777-200ERs in 2006 through 2010. Future payments for all
aircraft, including the estimated amounts for price escalation and
purchase deposits, will approximate $185 million during the
remainder of 2004, $743 million in 2005, $701 million in 2006 and
an aggregate of approximately $2.0 billion in 2007 through 2010.
The Company has pre-arranged financing for its remaining 10
aircraft deliveries in 2004 and the first 20 aircraft deliveries in
2005.
-4-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
In October 2004, AMR Eagle reached a tentative agreement with
Embraer to cancel its last 18 planned ERJ-145 regional jet
aircraft deliveries, scheduled for delivery from July 2005 until
February 2006, in exchange for canceling certain contractual
rights. This agreement has not been finalized and is not reflected
in the aircraft commitments listed above. Once this agreement is
finalized, the Company's 2004, 2005 and 2006 aircraft commitments
will be reduced by $7 million, $289 million and $34 million,
respectively.
The Company is subject to environmental issues at various airport
and non-airport locations for which it has accrued, in Accrued
liabilities on the accompanying condensed consolidated balance
sheets, $71 million and $72 million at September 30, 2004 and
December 31, 2003, respectively. 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 2003, the Company reached concessionary agreements with certain
lessors. Certain of these agreements provide that the Company's
obligations under the related leases revert to the original terms
if certain events occur prior to December 31, 2005, including: (i)
an event of default under the related lease (which generally occurs
only if a payment default occurs), (ii) an event of loss with
respect to the related aircraft, (iii) rejection by the Company of
the lease under the provisions of Chapter 11 of the U.S. Bankruptcy
Code or (iv) the Company's filing for bankruptcy under Chapter 7 of
the U.S. Bankruptcy Code. If any one of these events were to
occur, the Company would be responsible for approximately $66
million in additional operating lease payments and $54 million in
additional payments related to capital leases as of September 30,
2004. These amounts will increase to approximately $119 million in
operating lease payments and $111 million in payments related to
capital leases prior to the expiration of the provision on December
31, 2005. These amounts are being accounted for as contingent
rentals and will only be recognized if they become payable.
Financial Accounting Standards Board Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others"
(Interpretation 45), requires disclosures in interim and annual
financial statements about obligations under certain guarantees
issued by the Company. The disclosures required by Interpretation
45 were included in Notes 4, 5 and 6 to the consolidated financial
statements in the 2003 Form 10-K. There have been no significant
changes to such disclosures except as disclosed in Note 6 in this
Form 10-Q.
4.Accumulated depreciation of owned equipment and property at
September 30, 2004 and December 31, 2003 was $9.2 billion and $8.5
billion, respectively. Accumulated amortization of equipment and
property under capital leases at September 30, 2004 and December
31, 2003 was $1.1 billion.
5.As discussed in Note 8 to the consolidated financial statements in
the 2003 Form 10-K, the Company has a valuation allowance against
the full amount of its net deferred tax asset. The Company's
deferred tax asset valuation allowance increased $127 million
during the nine months ended September 30, 2004 to $790 million as
of September 30, 2004.
6.During the nine-month period ended September 30, 2004, AMR Eagle
borrowed approximately $494 million (net of discount) under various
debt agreements related to the purchase of regional jet aircraft,
including certain seller financed agreements. These debt agreements
are secured by the related aircraft, have interest rates which are
either fixed or variable based on LIBOR plus a spread, and mature
over various periods of time through 2020. As of September 30,
2004, the effective interest rates on these agreements range up to
4.88 percent. These debt agreements are guaranteed by AMR.
In addition, in February 2004, American issued $180 million of
Fixed Rate Secured Notes due 2009, which bear interest at 7.25
percent. As of September 30, 2004, these notes are secured by
certain spare parts (with a net book value of $218 million), and by
$39 million in cash collateral (classified as Other assets on the
accompanying condensed consolidated financial statements).
-5-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Also in February 2004, the Company issued $324 million principal
amount of 4.50 percent senior convertible notes due 2024 (the 4.50
Notes). Each note is convertible into AMR common stock at a
conversion rate of 45.3515 shares per $1,000 principal amount of
notes (which represents an equivalent conversion price of $22.05
per share), subject to adjustment in certain instances. The notes
are convertible under certain circumstances, including if (i) the
closing sale price of the Company's common stock reaches a certain
level for a specified period of time, (ii) the trading price of the
notes as a percentage of the closing sale price of the Company's
common stock falls below a certain level for a specified period of
time, (iii) the Company calls the notes for redemption, or (iv)
certain corporate transactions occur. Holders of the notes may
require the Company to repurchase all or any portion of the notes
on February 15, 2009, 2014 and 2019 at a purchase price equal to
the principal amount of the notes being purchased plus accrued and
unpaid interest to the date of purchase. The Company may pay the
purchase price in cash, common stock or a combination of cash and
common stock. After February 15, 2009, the Company may redeem all
or any portion of the notes for cash at a price equal to the
principal amount of the notes being redeemed plus accrued and
unpaid interest as of the redemption date. These notes are
guaranteed by American. If the holders of the 4.50 Notes or the
Company's 4.25 percent senior convertible notes due 2023 (the 4.25
Notes) require the Company to repurchase all or any portion of the
notes on the repurchase dates, it is the Company's present
intention to satisfy the requirement in cash.
American has a fully drawn $834 million bank credit facility
secured by aircraft that expires December 15, 2005. The facility
contains a liquidity covenant and an EBITDAR (generally, earnings
before interest, taxes, depreciation, amortization and rentals,
adjusted for certain non-cash items) to fixed charges (generally,
interest and total rentals) ratio covenant (the EBITDAR Covenant).
Prior to the amendment described below, the required EBITDAR to
fixed charges ratio was 1.3 to 1.0 for the nine-month period ending
September 30, 2004, 1.4 to 1.0 for the twelve-month period ending
December 31, 2004, and 1.5 to 1.0 for each of the four consecutive
calendar quarters ending after December 31, 2004. The liquidity
covenant requires American to maintain a minimum level of $1.0
billion of unrestricted cash and short-term investments (the
Liquidity Covenant). The Company was in compliance with the
Liquidity Covenant at September 30, 2004 and expects to continue to
comply with this covenant.
On September 22, 2004, American obtained an amendment to the
EBITDAR Covenant to lower the required EBITDAR to fixed charges
ratio to 1.0 to 1.0 for the nine-month period ending September 30,
2004 and 0.9 to 1.0 for the twelve-month period ending December 31,
2004. The required ratio remains 1.5 to 1.0 for each of the four
consecutive calendar quarters ending on or after March 31, 2005.
The Company was in compliance with the original EBITDAR Covenant by
a narrow margin for the period ending September 30, 2004, and
expects to comply with the amended covenant for the period ending
December 31, 2004. Without the amendment to the EBITDAR Covenant,
the Company believes it would not have been able to comply with the
covenant for the twelve-month period ending December 31, 2004. In
addition, the Company believes it will be unable to comply with the
EBITDAR Covenant for the four-quarter period ending March 31, 2005
and periods ending thereafter.
The Company plans to refinance the bank credit facility with one or
more credit facilities or term loans (collectively, the Replacement
Facility). While the Company believes that it should be able to
obtain the Replacement Facility on acceptable terms before March
31, 2005, there can be no assurance that it will be able to do so.
Failure to comply with the EBITDAR Covenant or the Liquidity
Covenant under the existing bank credit facility would result in a
default under this facility and - - if the Company did not take
steps to cure, obtain a waiver of, or otherwise mitigate the
default - - could result in a default under a significant amount of
the Company's other debt. The Company anticipates that the
Replacement Facility will be secured by the aircraft that secure
the existing bank credit facility, as well as by a significant
amount of other assets to be pledged by the Company.
-6-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
As of September 30, 2004, AMR has issued guarantees covering
approximately $932 million of American's tax-exempt bond debt and
American has issued guarantees covering approximately $1.3 billion
of AMR's unsecured debt. In addition, as of September 30, 2004,
AMR and American have issued guarantees covering approximately $466
million of AMR Eagle's secured debt, and AMR has issued guarantees
covering an additional $2.4 billion of AMR Eagle's secured debt.
7.The following tables provide the components of net periodic
benefit cost for the three and nine months ended September 30, 2004
and 2003 (in millions):
Pension Benefits
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Components of net periodic benefit cost
Service cost $ 89 $ 85 $ 268 $ 284
Interest cost 142 138 425 431
Expected return on assets (143) (118) (427) (354)
Amortization of:
Prior service cost 4 3 11 14
Unrecognized net loss 15 24 44 82
Curtailment loss * - - - 46
Net periodic benefit cost $ 107 $ 132 $ 321 $ 503
* Included in Special charges (credits) in the consolidated
statement of operations.
Other Postretirement Benefits
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Components of net periodic benefit cost
Service cost $ 19 $ 20 $ 57 $ 65
Interest cost 51 54 152 164
Expected return on assets (3) (2) (9) (7)
Amortization of:
Prior service cost (3) (2) (8) (6)
Unrecognized net loss 2 5 6 15
Net periodic benefit cost $ 66 $ 75 $ 198 $ 231
As of September 30, 2004, the Company had contributed the entire
$461 million it expects to contribute to its defined benefit
pension plans in 2004. The Company expects to contribute a minimum
of $421 million to its defined benefit pension plans in 2005. The
Company's estimates of its defined benefit pension plan
contributions reflect the provisions of the Pension Funding Equity
Act of 2004, which was enacted in April 2004 (the 2004 Pension
Act).
-7-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
In December 2003, the President signed the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (the Modernization
Act), which introduced a prescription drug benefit under Medicare
into law. The effect of the Modernization Act was (i) to reduce the
Company's accumulated postretirement benefit obligation (APBO) as
of December 31, 2003 by $415 million by decreasing unrecognized net
actuarial losses and (ii) to decrease the Company's full year 2004
postretirement benefits expense by approximately $60 million. The
decrease in the Company's APBO is due to a reduction in the
expected per capita claims cost along with a reduction in the
expected rates of participation in the plan and is reflected in the
Company's 2004 postretirement benefits expense through amortization
of unrecognized gains/losses. Additionally, the service and
interest cost components of the Company's 2004 postretirement
benefits expense have been reduced as a result of the Modernization
Act.
8.During the last few years, as a result of the events of September 11,
2001 and the Company's restructuring activities, the Company has
recorded a number of special charges. During the nine months ended
September 30, 2004 and 2003, the Company recorded the following to
Special charges (credits):
Amount
Description of Charge (millions)
2004
Aircraft charges
Adjusted prior accruals for lease return and
other costs due to lower than anticipated
lease return costs $(20)
Employee charges
Adjusted prior accruals for severance costs
related to the 2003 Management Reductions and
Labor Agreements* due to fewer furloughs than
anticipated resulting from the Company's
operational requirements and the volume of
pilot retirements $(11)
Facility exit costs
Adjusted prior accruals for future lease
commitments upon completion of a space
reevaluation done in connection with the
occupation of some of the space by another
carrier $(18)
2003
Aircraft charges
Retired Boeing 757 leased aircraft and accrued
future lease commitments and lease return $ 39
costs
Adjusted prior accruals for lease return and
other costs (20)
$ 19
-8-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Amount
Description of Charge (millions)
2003
Employee charges
Reduced approximately 8,000 jobs across all
work groups in conjunction with the Management
Reductions and the Labor Agreements. Accrued
primarily severance costs. $ 60
Recognized curtailment loss** 46
Accrued severance charges related to the 2002
workforce reduction 25
Reduced vacation accrual to reflect new lower
pay scales and maximum vacation caps and wrote-
off a note receivable from one of the
Company's three major unions in conjunction
with the Labor Agreements and the Management
Reductions (59)
Other 4
$ 76
Facility exit costs
Accrued the fair value of future lease
commitments and wrote-off certain prepaid
rental amounts and leasehold improvements
related to certain excess airport space $ 45
Other 5
$ 50
* In February 2003, American asked its employees for
approximately $1.8 billion in annual savings through a
combination of changes in wages, benefits and work
rules. In April 2003, American reached agreements with
its three major unions (the Labor Agreements) to
achieve these savings and also implemented various
reductions in the pay plans and benefits for non-
unionized personnel, including officers and other
management (the Management Reductions).
** As a result of workforce reductions related to the
Labor Agreements and Management Reductions, the Company
recognized a curtailment loss of $46 million related to
its defined benefit pension plans, in accordance with
Statement of Financial Accounting Standards No. 88,
"Employers' Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination
Benefits" (SFAS 88).
-9-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Other
As part of the Vendor Agreements discussed in Note 2 to the
consolidated financial statements in the 2003 Form 10-K, in 2003,
American sold 33 Fokker 100 aircraft (with a minimal net book
value), issued a $23 million non-interest-bearing note, payable in
installments and maturing in December 2010, entered into short-term
leases on these aircraft and issued shares of AMR common stock. In
exchange, approximately $130 million of debt related to certain of
the Fokker 100 aircraft was retired. However, the agreement
contains provisions that would require American to repay additional
amounts of the original debt if certain events occur prior to
December 31, 2005, including: (i) an event of default (which
generally occurs only if a payment default occurs), (ii) an event
of loss with respect to the related aircraft, (iii) rejection by
the Company of the lease under the provisions of Chapter 11 of the
U.S. Bankruptcy Code or (iv) the Company's filing for bankruptcy
under Chapter 7 of the U.S. Bankruptcy Code. As a result of this
transaction, including the sale of the 33 Fokker 100 aircraft, and
the termination of the Company's interest rate swap agreements
related to the debt that has been retired, the Company recognized a
gain of approximately $68 million in the third quarter of 2003,
which was recorded as a component of Special charges (credits) in
the accompanying condensed consolidated financial statements. If
the certain events described above do not occur, the Company
expects to recognize an additional gain of approximately $37
million in December 2005.
The following table summarizes the changes in the remaining
accruals for special charges (in millions):
Aircraft Facility Employee
Charges Exit Costs Charges Total
Remaining accrual at
December 31, 2003 $ 197 $ 56 $ 26 $ 279
Adjustments (20) (18) (11) (49)
Payments (47) (7) (11) (65)
Remaining accrual at
September 30, 2004 $ 130 $ 31 $ 4 $ 165
Cash outlays related to the accruals, as of September 30, 2004, for
aircraft charges, facility exit costs and employee charges will
occur through 2014, 2018 and 2004, respectively.
U.S. Government Grant
In April 2003, the President signed the Emergency Wartime
Supplemental Appropriations Act, which included provisions
authorizing payment of $2.3 billion to reimburse air carriers for
increased security costs in proportion to the amounts each carrier
had paid in passenger security and air carrier security fees to the
Transportation Security Administration (the Security Fee
Reimbursement). The Company's Security Fee Reimbursement was $358
million (net of payments to independent regional affiliates) and is
included in U.S. government grant in the accompanying consolidated
statement of operations.
9.In September 2004, the Company reduced both its accident
liabilities and related receivables by $417 million based on
revised estimates from its insurance carriers due primarily to the
expiration of certain statutes of limitations. These insurance
receivables and liabilities are classified as Other assets and
Other liabilities and deferred credits on the accompanying
condensed consolidated balance sheets, respectively.
10.The Company includes changes in the fair value of certain
derivative financial instruments that qualify for hedge accounting,
changes in minimum pension liabilities and unrealized gains and
losses on available-for-sale securities in comprehensive loss. In
the second quarter of 2003, as a result of the Labor Agreements and
Management Reductions discussed in Note 8 in this Form 10-Q, the
Company remeasured its defined benefit plans. In conjunction with
the remeasurement the Company recorded an increase in its minimum
pension liability, which resulted in an additional charge to
stockholders' equity as a component of other comprehensive loss of
$334 million.
-10-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
For the three months ended September 30, 2004 and 2003,
comprehensive loss was $194 million and $22 million, respectively,
and for the nine months ended September 30, 2004 and 2003,
comprehensive loss was $371 million and $1.5 billion, respectively.
The difference between net loss and comprehensive loss for the
three and nine months ended September 30, 2004 and the three months
ended September 30, 2003 is due primarily to the accounting for the
Company's derivative financial instruments. The difference between
net loss and comprehensive loss for the nine months ended September
30, 2003 is due primarily to the adjustment to the Company's
minimum pension liability and the accounting for the Company's
derivative financial instruments.
11.The following table sets forth the computations of basic and
diluted earnings (loss) per share (in millions, except per share
data):
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Numerator:
Net earnings (loss) - numerator
for basic and diluted earnings
(loss) per share $(214) $ 1 $(374) $(1,117)
Denominator:
Denominator for basic earnings
(loss) per share - weighted-
average shares 161 159 160 158
Effect of dilutive securities:
Employee options and shares - 45 - -
Assumed treasury shares purchased - (23) - -
Dilutive potential common shares - 22 - -
Denominator for diluted earnings
(loss) per share - adjusted
weighted-average shares 161 181 160 158
Basic and diluted earnings (loss)
per share $(1.33) $ - $(2.33) $(7.08)
For the three and nine months ended September 30, 2004
approximately 16 million and 22 million potential dilutive shares,
respectively, were not added to the denominator, because inclusion
of such shares would be antidilutive, as compared to approximately
ten million shares for the nine months ended September 30, 2003. In
addition, for the three and nine months ended September 30, 2004,
approximately 32 million shares issuable upon conversion of the
4.50 Notes (discussed in Note 6 in this Form 10-Q) and the 4.25
Notes (discussed in the 2003 Form 10-K) were not added to the
denominator because the contingent conversion conditions were not
met, and for the three and nine months ended September 30, 2003,
approximately 17 million shares issuable upon conversion of the
4.25 Notes were not added to the denominator because the contingent
conversion conditions were not met.
In October 2004, the Financial Accounting Standards Board ratified
the consensus on EITF Issue No. 04-08, "The Effect of Contingently
Convertible Debt on Diluted Earnings Per Share," (EITF 04-08).
EITF 04-08 is effective for periods ending after December 15, 2004
and will require shares issuable upon conversion of the 4.50 Notes
and 4.25 Notes to be included in the calculation of fully diluted
earnings per share unless the inclusion of such shares would be
antidilutive. The effect of these shares on fully diluted earnings
per share would have been antidilutive for all prior periods and
the Company expects the effect of these shares on fully diluted
earnings per share to be antidilutive for periods ending on
December 31, 2004.
During the nine months ended September 30, 2004, approximately one
million shares were issued from Treasury stock pursuant to stock
option and deferred stock incentive plans.
-11-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking Information
Statements in this report contain various forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs
concerning future events. When used in this document and in documents
incorporated herein by reference, the words "expects," "plans,"
"anticipates," "indicates," "believes," "forecast," "guidance,"
"outlook" and similar expressions are intended to identify forward-
looking statements. Forward-looking statements include, without
limitation, the Company's expectations concerning operations and
financial conditions, including changes in capacity, revenues, and
costs, future financing plans and needs, overall economic conditions,
plans and objectives for future operations, and the impact on the
Company of its results of operations in recent years and the
sufficiency of its financial resources to absorb that impact. Other
forward-looking statements include statements which do not relate
solely to historical facts, such as, without limitation, statements
which discuss the possible future effects of current known trends or
uncertainties, or which indicate that the future effects of known
trends or uncertainties cannot be predicted, guaranteed or assured.
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 risk factors
that could cause the Company's actual results to differ materially
from the Company's 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: changes in economic, business and financial conditions;
the Company's substantial indebtedness; continued high fuel prices and
the availability of fuel; further increases in the price of fuel; the
residual effects of the war in Iraq; conflicts in the Middle East or
elsewhere; the highly competitive business environment faced by the
Company, with increasing competition from low cost carriers and
bankrupt carriers and historically low fare levels (which could result
in a further deterioration of the revenue environment); the ability of
the Company to implement its restructuring program and the effect of
the program on operational performance and service levels;
uncertainties with respect to the Company's international operations;
changes in the Company's business strategy; actions by U.S. or foreign
government agencies; the possible occurrence of additional terrorist
attacks; another outbreak of a disease (such as SARS) that affects
travel behavior; uncertainties with respect to the Company's
relationships with unionized and other employee work groups; the
ability of the Company to satisfy existing financial or other
covenants in certain of its credit agreements; the availability of
future financing (including the proposed Replacement Facility
described in Note 6 to the accompanying condensed consolidated
financial statements); the ability of the Company to reach acceptable
agreements with third parties; and increased insurance costs and
potential reductions of available insurance coverage. Additional
information concerning these and other factors is contained in the
Company's Securities and Exchange Commission filings, including but
not limited to the 2003 Form 10-K.
Overview
The Company incurred a $214 million net loss during the third quarter
of 2004 compared to net earnings of $1 million in the same period last
year. This loss occurred in what is typically the Company's strongest
quarter. Over the course of the quarter, the Company's results
deteriorated primarily due to the continuing increase in fuel prices
and secondarily due to a weakening of the revenue environment.
The Company's operating and financial results are significantly
affected by the price of jet fuel. Fuel price increases during the
quarter resulted in a year-over-year increase of 40.4 cents per gallon
for American's mainline operations for the third quarter. This price
increase negatively impacted fuel expense by $312 million during the
quarter, based on mainline fuel consumption of 773 million gallons.
Continuing high fuel prices, additional increases in the price of
fuel, or disruptions in the supply of fuel, would further adversely
affect the Company's financial condition and results of operations.
-12-
Mainline unit revenues (passenger revenue per available seat mile)
declined 2.5 percent during the third quarter due to a 4.8 percent
decrease in passenger yield (passenger revenue per passenger mile)
compared to the same period in 2003. For the current period, passenger
yield declined from already depressed levels. The Company believes
this decline in passenger yield is due in large part to a
corresponding decline in the Company's pricing power. The Company's
reduced pricing power is the product of several factors, including:
greater cost sensitivity on the part of travelers (particularly
business travelers); greater competition from low-cost carriers;
significant increases in overall capacity in 2004 that have exceeded
the growth in demand; and more frequent and more deeply discounted
fare sales initiated by competitors, including competitors currently
operating under the protection of Chapter 11 of the Bankruptcy Code.
The Company's third quarter 2004 results were also adversely impacted
by hurricanes.
In the face of these additional challenges, the Company is undertaking
a number of new initiatives designed to generate additional revenues
and reduce costs. Examples include:
- - American will continue its expansion in the Asia/Pacific market,
launching daily nonstop service between Chicago and Nagoya, Japan on
April 3, 2005 and resuming daily nonstop service between Dallas/Fort
Worth and Osaka, Japan on November 1, 2005. American is also
vigorously seeking authority to begin nonstop service between Chicago
and Shanghai, China, starting on May 1, 2005.
- - American will begin adding additional seats to its McDonnell
Douglas MD-80, Boeing 737 and Boeing 767 aircraft in January 2005 and
its Boeing 777 aircraft in October 2005. The additional seats will
allow American to increase its revenues while still offering customers
better-than-industry-average legroom.
- - American has decided to withdraw capacity equivalent to 15 narrow-
body aircraft in 2005.
- - AMR Eagle has reached a tentative agreement with Embraer to
cancel its last 18 planned ERJ-145 regional jet aircraft deliveries,
scheduled for delivery from July 2005 through February 2006.
- - American will expand the simplification experiment it launched in
Chicago in the summer of 2004, in which aircraft types are assigned to
certain stations and crew and aircraft are scheduled together. This
approach will be implemented throughout American's system in 2005.
- - Other revenue initiatives include: ticketing fees ($5 for tickets
purchased through U.S. reservations offices and $10 for tickets bought
at U.S. airport locations); a $250 nonrefundable co-payment for
AAdvantage mileage Upgrade Awards when used with certain discount
fares; and fare actions in certain markets. Additionally, the U.S.
Department of Transportation recently issued a favorable ruling,
allowing U.S. carriers to apply fuel surcharges to all of their
international routes, which should further improve revenue.
The Company's ability to become profitable and its ability to
continue to fund its obligations on an ongoing basis will depend on a
number of risk factors, many of which are largely beyond the
Company's control. Some of the risk factors that affect the
Company's business and financial results are referred to under
"Forward-Looking Information" above and are discussed in the Risk
Factors listed in Item 7 (on pages 36-38) in the 2003 Form 10-K. As
the Company seeks to improve its financial condition, it must
continue to take steps to generate additional revenues and
significantly reduce its costs. However, it will be very difficult
for the Company to become profitable and continue to fund its
obligations on an ongoing basis if the revenue environment does not
improve and fuel prices remain at historically high levels for an
extended period.
-13-
LIQUIDITY AND CAPITAL RESOURCES
Cash, Short-Term Investments and Restricted Assets
AMR ended the quarter with $3.1 billion of cash and short-term
investments (and an additional $481 million in restricted cash and
short-term investments). As of the date of this Form 10-Q, the
Company believes it should be able to refinance its fully drawn bank
credit facility discussed below and have sufficient liquidity to fund
its operations for the foreseeable future. Nevertheless, AMR remains
heavily indebted and has significant obligations due in 2005 and
thereafter, as described more fully below and under Item 7,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the 2003 Form 10-K.
Credit Facility
American has a fully drawn $834 million bank credit facility secured
by aircraft that expires December 15, 2005. The facility contains a
liquidity covenant and an EBITDAR (generally, earnings before
interest, taxes, depreciation, amortization and rentals, adjusted for
certain non-cash items) to fixed charges (generally, interest and
total rentals) ratio covenant (the EBITDAR Covenant). Prior to the
amendment described below, the required EBITDAR to fixed charges ratio
was 1.3 to 1.0 for the nine-month period ending September 30, 2004,
1.4 to 1.0 for the twelve-month period ending December 31, 2004, and
1.5 to 1.0 for each of the four consecutive calendar quarters ending
after December 31, 2004. The liquidity covenant requires American to
maintain a minimum level of $1.0 billion of unrestricted cash and
short-term investments (the Liquidity Covenant). The Company was in
compliance with the Liquidity Covenant at September 30, 2004 and
expects to continue to comply with this covenant.
On September 22, 2004, American obtained an amendment to the EBITDAR
Covenant to lower the required EBITDAR to fixed charges ratio to 1.0
to 1.0 for the nine-month period ending September 30, 2004 and 0.9 to
1.0 for the twelve-month period ending December 31, 2004. The
required ratio remains 1.5 to 1.0 for each of the four consecutive
calendar quarters ending on or after March 31, 2005. The Company was
in compliance with the original EBITDAR Covenant by a narrow margin
for the period ending September 30, 2004, and expects to comply with
the amended covenant for the period ending December 31, 2004. Without
the amendment to the EBITDAR Covenant, the Company believes it would
not have been able to comply with the covenant for the twelve-month
period ending December 31, 2004. In addition, the Company believes it
will be unable to comply with the EBITDAR Covenant for the four-
quarter period ending March 31, 2005 and periods ending thereafter.
The Company plans to refinance the bank credit facility with one or
more credit facilities or term loans (collectively, the Replacement
Facility). While the Company believes that it should be able to obtain
the Replacement Facility on acceptable terms before March 31, 2005,
there can be no assurance that it will be able to do so. Failure to
comply with the EBITDAR Covenant or the Liquidity Covenant under the
existing bank credit facility would result in a default under this
facility and - - if the Company did not take steps to cure, obtain a
waiver of, or otherwise mitigate the default - - could result in a
default under a significant amount of the Company's other debt. The
Company anticipates that the Replacement Facility will be secured by
the aircraft that secure the existing bank credit facility, as well as
by a significant amount of other assets to be pledged by the Company.
-14-
Significant Indebtedness and Future Financing
During 2001, 2002 and 2003, the Company raised an aggregate of
approximately $10.0 billion of financing mostly to fund capital
commitments (mainly for aircraft and ground properties) and operating
losses. During the nine months ended September 30, 2004, the Company
raised an additional $993 million of financing to fund capital
commitments and for general corporate purposes, and ended the period
with $3.1 billion of unrestricted cash and short-term investments
compared with $2.6 billion at December 31, 2003. As of the date of
this Form 10-Q, the Company believes that it should be able to
refinance its existing fully drawn bank credit facility and have
sufficient liquidity to fund its operations for the foreseeable
future, including capital expenditures and other contractual
obligations. However, to maintain sufficient liquidity as the Company
seeks to return to profitability, the Company will need access to
additional funding in the future. The Company's possible future
financing sources primarily include: (i) a limited amount of
additional secured aircraft debt (virtually all of the Company's
Section 1110-eligible aircraft are encumbered), (ii) debt secured by
new aircraft deliveries, (iii) debt secured by other assets, (iv)
securitization of future operating receipts, (v) sale-leaseback
transactions involving owned aircraft, (vi) the sale of certain assets
(including the Company's interest in Orbitz, Inc. (Orbitz), a travel
planning website - - see discussion below) and (vii) equity and/or
equity-like securities. However, the availability and level of these
financing sources cannot be assured, particularly in light of high
fuel prices, historically weak revenues, the financial difficulties
being experienced in the airline industry and the fact that the
Company now has far fewer unencumbered assets available than it has
had in the past. In addition, the Company expects to pledge
additional assets to secure the Replacement Facility, as described
above.
On September 29, 2004, Cendant Corporation announced a tender offer
for all shares of Orbitz at $27.50 per share. American owns
approximately 6.7 million shares of Orbitz. The estimated proceeds to
American if the transaction is consummated are $185 million. The
tender offer is still subject to regulatory and other approvals and
conditions and may not occur in the fourth quarter or at all. If and
when this transaction is completed, the Company expects to recognize a
gain of approximately $145 million.
The Company's significant indebtedness could have important future
consequences, such as (i) limiting the Company's ability to obtain
additional financing for working capital, capital expenditures,
acquisitions and general corporate purposes, (ii) requiring the
Company to dedicate a substantial portion of its cash flow from
operations to payments on its indebtedness, (iii) making the Company
more vulnerable to economic downturns, (iv) limiting its ability to
withstand competitive pressures and reducing its flexibility in
responding to changing business and economic conditions, and (v)
limiting the Company's flexibility in planning for, or reacting to,
changes in its business and the industry in which it operates.
Financing Activity
The Company, or its subsidiaries, issued the following debt during the
nine months ended September 30, 2004 (in millions):
7.25% secured notes due 2009 $ 180
4.50% senior convertible notes due
2024 (net of discount) 319
Various debt agreements related to
the purchase of regional jet aircraft
(effective interest rates ranging
up to 4.88%) (various maturities
through 2020) (net of discount) 494
$ 993
See Note 6 to the accompanying condensed consolidated financial
statements for additional information regarding the debt issuances
listed above.
-15-
Other Operating and Investing Activities
The Company's cost savings initiatives resulted in improved cash flow
from operations during the nine months ended September 30, 2004,
compared to the same period in 2003. Net cash provided by operating
activities in the nine-month period ended September 30, 2004 was $803
million, an increase of $210 million over the same period in 2003. Net
cash provided by operating activities for the nine months ended
September 30, 2003 included the receipt of a $572 million federal tax
refund and the receipt of $358 million from the U.S. government under
the Appropriations Act, offset by $216 million of redemption payments
under operating leases for special facility revenue bonds.
Capital expenditures for the first nine months of 2004 were $791
million and included the acquisition of 26 Embraer 145 and six
Bombardier CRJ-700 aircraft.
Pension Funding Obligation
As of September 30, 2004, the Company had contributed the entire $461
million it expects to contribute to its defined benefit pension plans
in 2004. The Company expects to contribute a minimum of $421 million
to its defined benefit pension plans in 2005. The Company's estimates
of its defined benefit pension plan contributions reflect the
provisions of the 2004 Pension Act.
RESULTS OF OPERATIONS
Overview
The Company's operating income (loss) and net earnings (loss) worsened
during the three months ended September 30, 2004 compared to the same
period in 2003, but improved for the nine months ended September 30,
2004 compared to the same period in 2003.
(in millions) Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 Change 2004 2003 Change
Operating Income (Loss)$ (27) $165 $(192) $ 211 $ (617) $ 828
Net Earnings (Loss) $(214) $ 1 $(215) $(374) $(1,117) $ 743
As discussed above, the year-over-year decline in the Company's
operating results for the third quarter is largely due to the
continuing increase in fuel costs and the weak revenue environment.
The year-over-year improvement in the Company's operating results for
the nine months ended September 30, 2004 reflects the benefit of the
cost reduction initiatives in the Company's restructuring program,
which is described more fully under Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the
2003 Form 10-K, dampened by the increase in fuel costs.
-16-
For the Three Months Ended September 30, 2004 and 2003
Revenues
The Company's revenues increased approximately $157 million, or 3.4
percent, to $4.8 billion in the third quarter of 2004 from the same
period last year. American's passenger revenues increased by 0.9
percent, or $33 million, on a capacity (available seat mile) (ASM)
increase of 3.5 percent. American's passenger load factor increased
1.9 points to 77.9 percent while passenger revenue yield per passenger
mile decreased by 4.8 percent to 11.07 cents. This resulted in a
decrease in passenger revenue per available seat mile (RASM) of 2.5
percent to 8.62 cents. Following is additional information regarding
American's domestic and international RASM and capacity:
Three Months Ended September 30, 2004
RASM Y-O-Y ASMs Y-O-Y
(cents) Change (billions) Change
Domestic 8.29 (4.6)% 29.6 (1.3)%
International 9.28 0.9 14.9 14.5
Latin America 8.63 (7.0) 7.2 16.8
Europe 10.06 9.6 6.3 8.7
Pacific 9.13 4.7 1.4 32.7
Regional affiliates' passenger revenues, which are based on industry
standard mileage proration agreements for flights connecting to
American flights, increased $89 million, or 22.3 percent, to $488
million as a result of increased capacity and load factors. Regional
affiliates' traffic increased 33.9 percent to 2.0 billion revenue
passenger miles (RPMs), while capacity increased 29.7 percent to 2.8
billion ASMs, resulting in a 2.2 point increase in passenger load
factor to 69.0 percent.
Cargo revenues increased 10.4 percent, or $14 million, due to a 9.1
percent increase in cargo ton miles and a 0.9 percent increase in
cargo revenue yield per ton mile.
Operating Expenses
The Company's total operating expenses increased 7.9 percent, or $349
million, to $4.8 billion in the third quarter of 2004 compared to the
third quarter of 2003. American's mainline operating expenses per ASM
in the third quarter of 2004 increased 2.7 percent compared to the
third quarter of 2003 to 9.68 cents. This increase in operating
expenses per ASM is due primarily to a 47.5 percent increase in
American's price per gallon of fuel in the third quarter of 2004
relative to the third quarter of 2003.
(in millions) Three Months
Ended Increase/
September 30, (Decrease) Percentage
Operating Expenses 2004 from 2003 Change
Wages, salaries and benefits $ 1,696 $ 3 0.2%
Aircraft fuel 1,056 355 50.6 (a)
Depreciation and amortization 317 (28) (8.1)
Other rentals and landing fees 295 (7) (2.3)
Commissions, booking fees
and credit card expense 288 7 2.5
Maintenance, materials and
repairs 265 42 18.8 (b)
Aircraft rentals 152 (13) (7.9)
Food service 145 (15) (9.4)
Other operating expenses 593 (1) (0.2)
Special charges (credits) (18) 6 (25.0) (c)
Total operating expenses $ 4,789 $ 349 7.9%
-17-
(a)Aircraft fuel expense increased primarily due to a 47.5 percent
increase in American's price per gallon of fuel (net of the
impact of fuel hedging).
(b)Maintenance, materials and repairs increased primarily due to
increased aircraft utilization, the benefit from retiring aircraft
subsiding and increases in contractual rates in certain flight hour
agreements for outsourced aircraft engine maintenance.
(c)Special charges (credits) for the quarter ending September 30, 2004
included the reversal of reserves previously established for facility
exit costs of $18 million. Special charges (credits) for the quarter
ending September 30, 2003 included a $68 million gain resulting from a
transaction involving 33 of the Company's Fokker 100 aircraft and
related debt offset by $39 million in aircraft related charges and $5
million in employee charges and facility exit costs (see Note 8 to the
accompanying condensed consolidated financial statements).
Other Income (Expense)
Other income (expense), historically a net expense, increased $23
million due primarily to the increase in Interest expense of $21
million, or 10.6 percent, resulting primarily from the increase in the
Company's long-term debt.
Income Tax
The Company did not record a net tax benefit associated with its third
quarter 2004 losses or a net tax provision associated with its third
quarter 2003 earnings due to the Company providing a valuation
allowance, as discussed in Note 5 to the accompanying condensed
consolidated financial statements.
Operating Statistics
The following table provides statistical information for American and
Regional Affiliates for the three months ended September 30, 2004 and
2003.
Three Months Ended
September 30,
2004 2003
American Airlines, Inc. Mainline Jet Operations
Revenue passenger miles (millions) 34,659 32,718
Available seat miles (millions) 44,515 43,021
Cargo ton miles (millions) 529 485
Passenger load factor 77.9% 76.0%
Passenger revenue yield per passenger
mile (cents) 11.07 11.63
Passenger revenue per available seat
mile (cents) 8.62 8.84
Cargo revenue yield per ton mile (cents) 28.11 27.86
Operating expenses per available seat mile,
excluding Regional Affiliates (cents) (*) 9.68 9.43
Fuel consumption (gallons, in millions) 773 772
Fuel price per gallon (cents) 125.4 85.0
Operating aircraft at period-end 734 799
Regional Affiliates
Revenue passenger miles (millions) 1,959 1,463
Available seat miles (millions) 2,840 2,190
Passenger load factor 69.0% 66.8%
(*)Excludes $539 million and $441 million of expense incurred
related to Regional Affiliates in 2004 and 2003, respectively.
-18-
Operating aircraft at September 30, 2004, included:
American Airlines Aircraft AMR Eagle Aircraft
Airbus A300-600R 34 ATR 42 3
Boeing 737-800 77 Bombardier CRJ-700 25
Boeing 757-200 143 Embraer 135 39
Boeing 767-200 Extended Range 16 Embraer 140 59
Boeing 767-300 Extended Range 58 Embraer 145 78
Boeing 777-200 Extended Range 45 Super ATR 41
McDonnell Douglas MD-80 361 Saab 340B/340B Plus 35
Total 734 Total 280
The average aircraft age for American's and AMR Eagle's aircraft is
12.1 years and 5.6 years, respectively.
Of the operating aircraft listed above, 23 McDonnell Douglas MD-80s
and one Saab 340B were in temporary storage as of September 30, 2004.
As part of the Company's fleet simplification initiative, American and
AMR Eagle have agreed to sell certain aircraft. As of September 30,
2004, remaining aircraft to be delivered under these agreements
include two Fokker 100 aircraft (both of which were non-operating and
therefore not included in the table above) and three ATR 42 aircraft,
with final deliveries in November 2004 and December 2004,
respectively.
Owned and leased aircraft not operated by the Company at September 30,
2004, included:
American Airlines Aircraft AMR Eagle Aircraft
Boeing 767-200 9 Embraer 145 10
Boeing 767-200 Extended Range 4 Saab 340B/340B Plus 51
Fokker 100 7 Total 61
McDonnell Douglas MD-80 2
Total 22
In October 2004, American agreed to sell four Boeing 767-200 Extended
Range and one Boeing 767-200 aircraft (all of which are non-
operating), with deliveries beginning in November 2004 and ending in
December 2005.
AMR Eagle has leased its 10 owned Embraer 145s not operated by the
Company to Trans States Airlines, Inc.
For the Nine Months Ended September 30, 2004 and 2003
Revenues
The Company's revenues increased approximately $1.1 billion, or 8.1
percent, to $14.1 billion for the nine months ended September 30, 2004
from the same period last year. American's passenger revenues
increased by 6.2 percent, or $668 million, on a capacity (available
seat mile) (ASM) increase of 5.9 percent. American's passenger load
factor increased 1.7 points to 75.0 percent while passenger revenue
yield per passenger mile decreased by 1.9 percent to 11.61 cents.
This resulted in an increase in passenger revenue per available seat
mile (RASM) of 0.3 percent to 8.70 cents notwithstanding the decrease
in RASM for the three months ended September 30, 2004. Following is
additional information regarding American's domestic and international
RASM and capacity:
-19-
Nine Months Ended September 30, 2004
RASM Y-O-Y ASMs Y-O-Y
(cents) Change (billions) Change
Domestic 8.53 (1.2)% 89.0 1.5%
International 9.06 3.6 42.1 16.5
Latin America 8.86 (2.9) 21.1 20.2
Europe 9.37 9.0 17.0 9.7
Pacific 8.78 19.8 4.0 29.9
Regional affiliates' passenger revenues, which are based on industry
standard mileage proration agreements for flights connecting to
American flights, increased $301 million, or 27.1 percent, to $1.4
billion as a result of increased capacity and load factors. Regional
affiliates' traffic increased 33.3 percent to 5.4 billion revenue
passenger miles (RPMs), while capacity increased 26.6 percent to 8.0
billion ASMs, resulting in a 3.4 point increase in passenger load
factor to 67.3 percent.
Cargo revenues increased 10.5 percent, or $43 million, primarily due
to a 10.1 percent increase in cargo ton miles.
Operating Expenses
The Company's total operating expenses increased 1.7 percent, or $227
million, to $13.9 billion for the nine months ended September 30, 2004
compared to the same period in 2003. American's mainline operating
expenses per ASM in the nine months ended September 30, 2004 decreased
5.5 percent compared to the same period in 2003 to 9.56 cents. This
decrease in operating expenses per ASM is due primarily to the
Company's cost savings initiatives and occurred despite the receipt of
a grant from the U.S. government in 2003 and a 29.1 percent increase
in American's price per gallon of fuel in the nine months ended
September 30, 2004 relative to the same period in 2003.
(in millions) Nine Months
Ended Increase/
Operating Expenses September 30, (Decrease) Percentage
2004 from 2003 Change
Wages, salaries and benefits $ 5,039 $(621) (11.0)% (a)
Aircraft fuel 2,781 704 33.9 (b)
Depreciation and amortization 963 (64) (6.2)
Other rentals and landing fees 901 10 1.1
Commissions, booking fees
and credit card expense 863 67 8.4
Maintenance, materials and repairs 741 100 15.6 (c)
Aircraft rentals 458 (74) (13.9) (d)
Food service 421 (39) (8.5)
Other operating expenses 1,775 (88) (4.7)
Special charges (credits) (49) (126) NM (e)
U.S. government grant - 358 NM (f)
Total operating expenses $ 13,893 $ 227 1.7%
(a)Wages, salaries and benefits decreased due to lower wage rates
and reduced headcount primarily as a result of the Labor Agreements
and Management Reductions, discussed in the Company's 2003 Form 10-K,
which became effective in the second quarter of 2003. This decrease
was offset to some degree by increased headcount related to capacity
increases.
(b)Aircraft fuel expense increased primarily due to a 29.1 percent
increase in American's price per gallon of fuel (net of the impact of
fuel hedging) and a 2.3 percent increase in American's fuel
consumption.
(c)Maintenance, materials and repairs increased primarily due to
increased aircraft utilization, the benefit from retiring aircraft
subsiding and increases in contractual rates in certain flight hour
agreements for outsourced aircraft engine maintenance.
-20-
(d)Aircraft rentals decreased primarily due to the removal of leased
aircraft from the fleet in the second half of 2003 as part of the
Company's restructuring initiatives and concessionary agreements with
certain lessors, which reduced future lease payment amounts and
resulted in the conversion of 30 operating leases to capital leases in
the second quarter of 2003.
(e)Special charges (credits) for the nine months ended September 30, 2004
included the reversal of reserves previously established for aircraft
return costs of $20 million, facility exit costs of $18 million and
employee severance of $11 million. Special charges (credits)for the
nine months ended September 30, 2003 included (i) a $68 million gain
resulting from a transaction involving 33 of the Company's Fokker 100
aircraft and related debt, (ii) $76 million in employee charges,
(iii) $50 million in facility exit costs and (iv) $39 million related
to aircraft charges offset by a $20 million reversal of reserves
previously established for aircraft return costs (see Note 8 to the
accompanying condensed consolidated financial statements).
(f)U.S. government grant for 2003 included the receipt of $358
million from the U.S. government under the Appropriations Act.
Other Income (Expense)
Other income (expense), historically a net expense, increased $85
million due primarily to the following: Interest expense increased
$68 million, or 11.7 percent, resulting primarily from the increase in
the Company's long-term debt. Miscellaneous-net increased $29 million,
due primarily to the accrual during the first quarter of 2004 of a $23
million award rendered by an independent arbitrator and relating to a
grievance filed by the Allied Pilots Association.
Income Tax
The Company did not record a net tax benefit associated with its
losses for the nine months ended September 30, 2004 and 2003 due to
the Company providing a valuation allowance, as discussed in Note 5 to
the accompanying condensed consolidated financial statements.
Operating Statistics
The following table provides statistical information for American and
Regional Affiliates for the nine months ended September 30, 2004 and
2003.
Nine Months Ended
September 30,
2004 2003
American Airlines, Inc. Mainline Jet Operations
Revenue passenger miles (millions) 98,271 90,736
Available seat miles (millions) 131,109 123,861
Cargo ton miles (millions) 1,617 1,468
Passenger load factor 75.0% 73.3%
Passenger revenue yield per passenger
mile (cents) 11.61 11.84
Passenger revenue per available
seat mile (cents) 8.70 8.67
Cargo revenue yield per ton mile (cents) 27.92 27.86
Operating expenses per available seat mile,
excluding Regional Affiliates (cents) (*) 9.56 10.12
Fuel consumption (gallons, in millions) 2,276 2,224
Fuel price per gallon (cents) 112.7 87.3
Regional Affiliates
Revenue passenger miles (millions) 5,355 4,017
Available seat miles (millions) 7,958 6,286
Passenger load factor 67.3% 63.9%
(*)Excludes $1.5 billion and $1.3 billion of expense incurred
related to Regional Affiliates in 2004 and 2003, respectively.
-21-
Outlook
As discussed in the Overview section on page 12 in this Form 10-Q, the
Company's results deteriorated over the course of the third quarter
primarily due to the continuing increase in fuel prices and
secondarily due to a weakening of the revenue environment. At this
time, the Company believes it is unlikely that fuel prices will
decrease meaningfully in the fourth quarter. Thus, the Company
expects to face continued high fuel prices in a quarter that is
typically seasonally weak from a revenue perspective. As a result, the
Company expects to incur a fourth quarter 2004 loss significantly
larger than its third quarter 2004 loss of $214 million.
In addition, the Company expects that the initiatives discussed in the
Overview section on page 13 in this Form 10-Q may result in some
special charges being recognized in the fourth quarter. The amount and
scope of these special charges are not known at the present time. In
addition, the Company expects to recognize a gain on the sale of the
Company's interest in Orbitz, which is discussed in the Liquidity and
Capital Resources section on page 15 in this Form 10-Q. However, the
closing date for the sale of the Company's interest in Orbitz is not
known at the present time and it may not occur in the fourth quarter
or at all.
Capacity for American's mainline jet operations is expected to
increase about 3.5 percent in the fourth quarter of 2004 compared to
the fourth quarter of 2003, and American's mainline unit costs in the
fourth quarter of 2004 is expected to be approximately 10.3 cents, a
0.6 percent year-over-year increase. American's average fuel price per
gallon in the fourth quarter of 2004 is expected to be approximately
$1.53 per gallon, a 73.5 percent year-over-year increase.
-22-
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Except as discussed below, there have been no material changes in
market risk from the information provided in Item 7A. Quantitative and
Qualitative Disclosures About Market Risk of the Company's 2003 Form
10-K.
The risk inherent in the Company's fuel related market risk sensitive
instruments and positions is the potential loss arising from adverse
changes in the price of fuel. 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 the Company's exposure to such changes.
Therefore, actual results may differ. The Company does not hold or
issue derivative financial instruments for trading purposes.
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 by using jet fuel, heating oil, and crude oil swap and
option contracts. Market risk is estimated as a hypothetical 10
percent increase in the September 30, 2004 cost per gallon of fuel.
Based on projected 2004 and 2005 fuel usage through September 30,
2005, such an increase would result in an increase to aircraft fuel
expense of approximately $499 million in the remainder of 2004 and the
first nine months of 2005, inclusive of the impact of fuel hedge
instruments outstanding at September 30, 2004, and assumes the
Company's fuel hedging program remains effective under Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Comparatively, based on projected
2004 fuel usage, such an increase would have resulted in an increase
to aircraft fuel expense of approximately $268 million in 2004,
inclusive of fuel hedge instruments outstanding as of December 31,
2003. The change in market risk is due to the increase in fuel prices
and a decrease in the amount of fuel hedged.
As of September 30, 2004, the Company had hedged, with crude oil
option contracts, approximately four percent of its estimated fourth
quarter 2004 fuel requirements at an average of $30 per barrel and an
insignificant percentage of its estimated 2005, 2006 and 2007 fuel
requirements.
Item 4. Controls and Procedures
The term "disclosure controls and procedures" is defined in Rules 13a-
15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the
Exchange Act. This term refers to the controls and procedures of a
company that are designed to ensure that information required to be
disclosed by a company in the reports that it files under the Exchange
Act is recorded, processed, summarized and reported within the time
periods specified by the Securities and Exchange Commission. An
evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of the Company's disclosure controls and procedures as
of September 30, 2004. Based on that evaluation, the Company's
management, including the CEO and CFO, concluded that the Company's
disclosure controls and procedures were effective as of September 30,
2004. During the quarter ending on September 30, 2004, there was no
change in the Company's internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
-23-
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
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 AMR Eagle and the plaintiffs; (2) constitutes unjust enrichment;
and (3) violates the Racketeer Influenced and Corrupt Organizations
Act of 1970 (RICO). The certified class includes all travel agencies
who have been or will be required to pay money to American for debit
memos for fare rules violations from July 26, 1995 to the present.
The 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. The Company intends
to vigorously defend the lawsuit. Although the Company believes that
the litigation is without merit, a final adverse court decision could
impose restrictions on the Company's relationships with travel
agencies, which could have an adverse impact on the Company.
On May 17, 2002, the named plaintiffs in Hall, et al. v. United
Airlines, et al., pending in the United States District Court for the
Eastern District of North Carolina, filed an amended complaint
alleging that between 1995 and the present, American and over 15 other
defendant airlines conspired to reduce commissions paid to U.S.-based
travel agents in violation of Section 1 of the Sherman Act. The
plaintiffs are seeking monetary damages and injunctive relief. The
court granted class action certification to the plaintiffs on
September 17, 2002, defining the plaintiff class as all travel agents
in the United States, Puerto Rico, and the United States Virgin
Islands, who, at any time from October 1, 1997 to the present, issued
tickets, miscellaneous change orders, or prepaid ticket advices for
travel on any of the defendant airlines. The case is stayed as to US
Airways and United Airlines, since they filed for bankruptcy.
American is vigorously defending the lawsuit. Defendant carriers
filed a motion for summary judgment on December 10, 2002, which the
court granted on October 30, 2003. Plaintiffs have appealed that
order to the 4th Circuit Court of Appeals, and that appeal remains
pending. A final adverse court decision awarding substantial money
damages or placing restrictions on the Company's commission policies
or practices would have an adverse impact on the Company.
Between April 3, 2003 and June 5, 2003, three lawsuits were filed by
travel agents some of whom have opted out of the Hall class action
(above) to pursue their claims individually against American Airlines,
Inc., other airline defendants, and in one case against certain
airline defendants and Orbitz LLC. (Tam Travel et. al., v. Delta Air
Lines et. al., in the United States District Court for the Northern
District of California - San Francisco (51 individual agencies), Paula
Fausky d/b/a Timeless Travel v. American Airlines, et. al, in the
United States District Court for the Northern District of Ohio Eastern
Division (29 agencies) and Swope Travel et al. v. Orbitz et. al. in
the United States District Court for the Eastern District of Texas
Beaumont Division (6 agencies)). Collectively, these lawsuits seek
damages and injunctive relief alleging that the certain airline
defendants and Orbitz LLC: (i) conspired to prevent travel agents from
acting as effective competitors in the distribution of airline tickets
to passengers in violation of Section 1 of the Sherman Act; (ii)
conspired to monopolize the distribution of common carrier air travel
between airports in the United States in violation of Section 2 of the
Sherman Act; and that (iii) between 1995 and the present, the airline
defendants conspired to reduce commissions paid to U.S.-based travel
agents in violation of Section 1 of the Sherman Act. These cases have
been consolidated in the United States District Court for the Northern
District of Ohio Eastern Division. American is vigorously defending
these lawsuits. A final adverse court decision awarding substantial
money damages or placing restrictions on the Company's distribution
practices would have an adverse impact on the Company.
-24-
On May 13, 2002, the named plaintiffs in Always Travel, et. al. v. Air
Canada, et. al., pending in the Federal Court of Canada, Trial
Division, Montreal, filed a statement of claim alleging that between
1995 and the present, American, the other defendant airlines, and the
International Air Transport Association conspired to reduce
commissions paid to Canada-based travel agents in violation of Section
45 of the Competition Act of Canada. The named plaintiffs seek
monetary damages and injunctive relief and seek to certify a
nationwide class of travel agents. Plaintiffs have filed a motion for
class certification, but that motion has not yet been decided.
American is vigorously defending the lawsuit. A final adverse court
decision awarding substantial money damages or placing restrictions on
the Company's commission policies would have an adverse impact on the
Company.
On August 14, 2002, a class action lawsuit was filed against American
Airlines, Inc. in the United States District Court for the Central
District of California, Western Division (All World Professional
Travel Services, Inc. v. American Airlines, Inc.). The lawsuit
alleges that requiring travel agencies to pay debit memos for
refunding tickets after September 11, 2001: (1) breaches the Agent
Reporting Agreement between American and plaintiff; (2) constitutes
unjust enrichment; and (3) violates the Racketeer Influenced and
Corrupt Organizations Act of 1970 (RICO). The alleged class includes
all travel agencies who have or will be required to pay moneys to
American for an "administrative service charge," "penalty fee," or
other fee for processing refunds on behalf of passengers who were
unable to use their tickets in the days immediately following the
resumption of air carrier service after the tragedies on September 11,
2001. On April 1, 2004, the court denied plaintiff's motion for class
certification. The plaintiff seeks to enjoin American from collecting
the debit memos and to recover the amounts paid for the debit memos,
plus treble damages, attorneys' fees, and costs. The Company intends
to vigorously defend the lawsuit. Although the Company believes that
the litigation is without merit, a final adverse court decision could
impose restrictions on the Company's relationships with travel
agencies which could have an adverse impact on the Company.
On August 19, 2002, a class action lawsuit seeking monetary damages
was filed, and on May 7, 2003 an amended complaint was filed in the
United States District Court for the Southern District of New York
(Power Travel International, Inc. v. American Airlines, Inc., et al.)
against American, Continental Airlines, Delta Air Lines, United
Airlines, and Northwest Airlines, alleging that American and the other
defendants breached their contracts with the agency and were unjustly
enriched when these carriers at various times reduced their base
commissions to zero. The as yet uncertified class includes all travel
agencies accredited by the Airlines Reporting Corporation "whose base
commissions on airline tickets were unilaterally reduced to zero by"
the defendants. The case is stayed as to United Airlines, since it
filed for bankruptcy. American is vigorously defending the lawsuit.
Although the Company believes that the litigation is without merit, a
final adverse court decision awarding substantial money damages or
forcing the Company to pay agency commissions would have an adverse
impact on the Company.
Miami-Dade County (the County) is currently investigating and
remediating various environmental conditions at the Miami
International Airport (MIA) and funding the remediation costs through
landing fees and various cost recovery methods. American Airlines,
Inc. and AMR Eagle have been named as potentially responsible parties
(PRPs) for the contamination at MIA. During the second quarter of
2001, the County filed a lawsuit against 17 defendants, including
American Airlines, Inc., in an attempt to recover its past and future
cleanup costs (Miami-Dade County, Florida v. Advance Cargo Services,
Inc., et al. in the Florida Circuit Court). The Company is vigorously
defending the lawsuit. In addition to the 17 defendants named in the
lawsuit, 243 other agencies and companies were also named as PRPs and
contributors to the contamination. The case is currently stayed while
the parties pursue an alternative dispute resolution process. The
County has proposed draft allocation models for remedial costs for the
Terminal and Tank Farm areas of MIA. While it is anticipated that
American and AMR Eagle will be allocated equitable shares of remedial
costs, the Company does not expect the allocated amounts to have a
material adverse effect on the Company.
Four cases (each being a purported class action) have been filed
against American arising from the disclosure of passenger name records
by a vendor of American. The cases are: Kimmell v. AMR, et al. (U.
S. District Court, Texas), Baldwin v. AMR, et al. (U. S. District
Court, Texas), Rosenberg v. AMR, et al. (U. S. District Court, New
York) and Anapolsky v. AMR, et al. (U.S. District Court, New York).
The Kimmell suit was filed in April 2004. The Baldwin and Rosenberg
cases were filed in May 2004. The Anapolsky suit was filed in
September 2004. The suits allege various causes of action, including
but not limited to, violations of the Electronic Communications
Privacy Act, negligent misrepresentation, breach of contract and
violation of alleged common law rights of privacy. In each case
plaintiffs seek statutory damages of $1000 per passenger, plus
additional unspecified monetary damages. The Company is vigorously
defending these suits and believes the suits are without merit.
-25-
Item 5. Other Information
Relationship with Ernst & Young LLP
Ernst & Young LLP ("Ernst & Young") is the Company's independent
auditor. Ernst & Young recently notified the SEC, the Public Company
Accounting Oversight Board and the Audit Committee of the Company's
Board of Directors that certain non-audit work it has performed in
China and Taiwan has raised questions regarding Ernst & Young's
independence with respect to its performance of audit services for the
Company.
Ernst & Young has disclosed that through January 2003 its affiliates
in China and Taiwan held employment tax related funds and made
payment of such funds to the applicable taxing authorities for a few
employees of American who worked in these countries. The total amount
of the funds transferred by Ernst & Young to the taxing authority was
less then $150,000 in any one year. For these services, the fees paid
to Ernst & Young were under $5,000 in any year. All such services
were discontinued in January 2003.
Under the SEC's rules regarding auditor independence, a company's
independent auditor is not permitted to have custody of an audit
client's assets.
These services are no longer performed by Ernst & Young for the
Company and/or American. Both the Audit Committee and Ernst & Young
have considered the effect these services may have had on Ernst &
Young's independence. The conclusion reached by the Audit Committee
and Ernst & Young is that the services have had no impact on Ernst &
Young's independence. The Audit Committee reached this conclusion by
considering the de minimis nature of the fees for the services, the
insignificant amounts of the funds involved, the administrative nature
of the services and the fact that there are no operations in these
locations subject to the audit of our consolidated financial
statements.
The Audit Committee will continue to evaluate and review matters that
are relevant to the maintenance of Ernst & Young's independence.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
12 Computation of ratio of earnings to fixed charges for the three
and nine months ended September 30, 2004 and 2003.
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
32 Certification pursuant to Rule 13a-14(b) and section 906 of the
Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350,
chapter 63 of title 18, United States Code).
Form 8-Ks filed under Item 5 - Other Events or Item 8.01 - Other Events
On July 9, 2004, AMR filed a report on Form 8-K to provide a press
release issued to report June traffic for American Airlines, Inc.
On August 3, 2004, AMR filed a report on Form 8-K to provide a press
release issued to report July traffic for American Airlines, Inc.
On August 26, 2004, AMR filed a report on Form 8-K to provide actual
fuel cost, unit cost and capacity and traffic information for July as
well as current fuel cost, unit cost and capacity and traffic
forecasts for August, September, the third quarter and the full year
2004.
On September 3, 2004, AMR filed a report on Form 8-K to provide a
press release issued to report August traffic for American Airlines,
Inc.
-26-
On September 22, 2004, AMR filed a report on Form 8-K to provide (a)
actual fuel price, unit cost and capacity and traffic information for
July and August, (b) forecasts of unit cost and revenue performance,
fuel prices, capacity estimates, liquidity expectations, other
income/expense estimates, statements regarding the Company's future
financing activities, and statements regarding the Company's liquidity
and (c) information regarding the fully drawn $834 million credit
facility of American Airlines, Inc.
Form 8-Ks furnished under Item 7.01 - Regulation FD Disclosure
On September 20, 2004, AMR furnished a report on Form 8-K to announce
that Gerard Arpey would speak to the Society of Airline Analysts on
Thursday, September 23, 2004.
Form 8-Ks filed under Item 12 - Disclosure of Results of Operations
and Financial Condition
On July 21, 2004, AMR furnished a report on Form 8-K to furnish a
press release issued by AMR to announce its second quarter 2004
results.
-27-
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMR CORPORATION
Date: October 21, 2004 BY: /s/ James A. Beer
James A. Beer
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
-28-
Exhibit 12
AMR CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Earnings (loss):
Earnings (loss) before income taxes $(214) $ 1 $ (374) $(1,117)
Add: Total fixed charges (per below) 442 430 1,318 1,302
Less: Interest capitalized 22 17 60 54
Total earnings (loss) before income taxes $ 206 $ 414 $ 884 $ 131
Fixed charges:
Interest, including interest capitalized $ 207 $ 188 $ 613 $ 552
Portion of rental expense
representative of the interest factor 219 230 660 715
Amortization of debt expense 16 12 45 35
Total fixed charges $442 $ 430 $1,318 $1,302
Coverage deficiency $236 $ 16 $ 434 $1,171
Exhibit 31.1
I, Gerard J. Arpey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMR
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: October 21, 2004 /s/ Gerard J. Arpey
Gerard J. Arpey
Chairman, President and Chief
Executive Officer
Exhibit 31.2
I, James A. Beer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMR
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: October 21, 2004 /s/ James A. Beer
James A. Beer
Senior Vice President and Chief
Financial Officer
Exhibit 32
AMR CORPORATION
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18,
United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of section 1350, chapter 63 of title 18,
United States Code), each of the undersigned officers of AMR
Corporation, a Delaware corporation (the Company), does hereby
certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended September 30,
2004 (the Form 10-Q) of the Company fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and information contained in the Form 10-Q fairly presents,
in all material respects, the financial condition and results of
operations of the Company.
Date: October 21, 2004 /s/ Gerard J. Arpey
Gerard J. Arpey
Chairman, President and Chief
Executive Officer
Date: October 21, 2004 /s/ James A. Beer
James A. Beer
Senior Vice President and Chief
Financial Officer
The foregoing certification is being furnished solely pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code) and
is not being filed as part of the Form 10-Q or as a separate
disclosure document.
