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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended: September 30, 1994
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from
______________________________________ to______________________________________
Commission file number: 1-8400
AMR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1825172
(State or other jurisdiction of (IRS Employer identification No.)
incorporation or organization)
4333 AMON CARTER BLVD.
FORT WORTH, TEXAS 76155
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 963-1234
(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
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 - 75,875,048 shares
outstanding as of October 31, 1994
2
AMR CORPORATION
INDEX
Page
Number
Part I: FINANCIAL INFORMATION
Consolidated Statement of Operations for the three and nine
months
ended September 30, 1994 and 1993 1
Condensed Consolidated Balance Sheet
at September 30, 1994 and December 31, 1993 3
Condensed Consolidated Statement of Cash Flows for
the nine months ended September 30, 1994 and 1993 4
Notes to Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II: OTHER INFORMATION
Item 2. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
3
PART I
Item 1. Consolidated Financial Statements
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended Nine Months Ended
(Unaudited) September 30, September 30,
(in millions, except per
share amounts) 1994 1993 1994 1993
Revenues
Air Transportation Group:
Passenger - American Airlines $ 3,370 $ 3,447 $ 9,665 $ 10,058
- AMR Eagle 220 191 608 536
Cargo 163 156 484 472
Other 170 134 458 402
3,923 3,928 11,215 11,468
The SABRE Group 393 356 1,167 1,033
AMR Management Services Group 136 120 394 331
Less: Intergroup revenues (219) (205) (634) (607)
Total operating revenues 4,233 4,199 12,142 12,225
Expenses
Wages, salaries and benefits 1,391 1,332 4,155 4,008
Aircraft fuel 421 464 1,204 1,434
Commissions to agents 346 401 1,011 1,112
Depreciation and amortization 298 293 938 889
Other rentals and landing fees 216 226 633 652
Aircraft rentals 172 186 523 556
Food service 172 187 505 537
Maintenance materials and repairs 149 160 441 506
Other operating expenses 579 578 1,683 1,679
Total operating expenses 3,744 3,827 11,093 11,373
Operating Income 489 372 1,049 852
Other Income (Expense)
Interest income 13 13 26 45
Interest expense (157) (164) (463) (507)
Interest capitalized 6 11 17 41
Miscellaneous - net (15) (9) (43) (157)
(153) (149) (463) (578)
Earnings Before Income Taxes 336 223 586 274
Income tax provision 131 98 235 124
Earnings Before Extraordinary Loss 205 125 351 150
Extraordinary Loss Net of Tax - (7) - (7)
Net Earnings 205 118 351 143
Preferred stock dividends 17 16 50 43
Earnings Applicable to
Common Shares $ 188 $ 102 $ 301 $ 100
See accompanying notes.
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AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (CONT'D)
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) 1994 1993 1994 1993
Earnings Per Common Share:
Primary:
Before Extraordinary Loss $ 2.47 $ 1.43 $ 3.95 $ 1.40
Extraordinary Loss - (0.10) - (0.10)
Net Earnings $ 2.47 $ 1.33 $ 3.95 $ 1.30
Fully diluted
Before Extraordinary Loss $ 2.27 $ 1.34 $ 3.89 $ 1.40
Extraordinary Loss - (0.08) - (0.10)
Net Earnings $ 2.27 $ 1.26 $ 3.89 $ 1.30
Number of common shares
used in computations (millions)
Primary 76 76 76 76
Fully diluted 90 98 90 76
See accompanying notes.
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AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, December 31,
(Unaudited) (in millions) 1994 1993
Current Assets
Cash $ 31 $ 63
Short-term investments 1,026 523
Receivables, net 1,114 910
Inventories, net 675 688
Other current assets 516 506
Total current assets 3,362 2,690
Equipment and Property
Flight equipment, net 10,001 9,783
Purchase deposits for flight equipment 121 350
10,122 10,133
Other equipment and property, net 2,037 2,128
12,159 12,261
Equipment and Property Under Capital
Leases
Flight equipment, net 1,729 1,543
Other equipment and property, net 176 173
1,905 1,716
Route acquisition costs, net 1,039 1,061
Other assets, net 1,823 1,598
$ 20,288 $ 19,326
Current Liabilities
Accounts payable $ 961 $ 921
Accrued liabilities 1,694 1,726
Air traffic liability 1,679 1,460
Current maturities of long-term debt 261 200
Current obligations under capital leases 147 110
Total current liabilities 4,742 4,417
Long-term debt 5,192 5,431
Obligations under capital leases 2,301 2,123
Deferred income taxes 542 310
Postretirement benefits 1,168 1,090
Other liabilities, deferred gains,
deferred credits 1,748 1,679
Stockholders' Equity
Convertible preferred stock 1,081 1,081
Common stock 76 76
Additional paid-in capital 2,041 2,035
Retained earnings 1,397 1,084
4,595 4,276
$ 20,288 $ 19,326
See accompanying notes.
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AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30,
(Unaudited) (in millions) 1994 1993
Net Cash Provided by Operating Activities $ 1,672 $ 1,391
Cash Flow from Investing Activities:
Capital expenditures (745) (1,702)
Net increase in short-term investments (503) (322)
Investment in Canadian Airlines
International, Ltd. (177) -
Other, net 18 (2)
Net cash used for investing activities (1,407) (2,026)
Cash Flow from Financing Activities:
Proceeds from:
Issuance of long-term debt 146 294
Issuance of preferred stock - 1,081
Net repayments of short-term borrowings with
maturities of 90 days or less - (350)
Other short-term borrowings 200 -
Payments on other short-term borrowings (200) (29)
Payments on long-term debt and capital
lease obligations (396) (247)
Payments of dividends on preferred stock (49) (32)
Other, net 2 4
Net cash (used for) provided by
financing activities (297) 721
Net (decrease) increase in cash (32) 86
Cash at beginning of period 63 45
Cash at end of period $ 31 $ 131
Cash Payments (Refunds) For:
Interest (net of amounts capitalized) $ 428 $ 427
Income taxes (32) (35)
Financing Activities Not Affecting Cash:
Capital lease obligations incurred $ 280 $ 21
See accompanying notes.
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AMR CORPORATION
Notes to Financial Statements
(Unaudited)
1. In the opinion of management, these financial statements contain
all adjustments necessary to present fairly the financial
position, results of operations and cash flows for the periods
indicated. Such adjustments are of a normal recurring nature
except as disclosed. These financial statements and related notes
should be read in conjunction with the financial statements and
notes included in AMR's Annual Report on Form 10-K for the year
ended December 31, 1993.
2. Passenger revenues for the nine months ended September 30, 1994,
includes a positive adjustment of $49 million produced by a
change in the estimate of the usage patterns of miles sold to
participating companies in American's AAdvantage frequent flyer
program. Included in passenger revenues for the nine months ended
September 30, 1993 is a positive adjustment of $115 million
resulting from a change in estimate relating to certain earned
passenger revenues.
3. Included in Miscellaneous - net for the nine months ended
September 30, 1993, is a $125 million charge related to the
retirement of 31 DC-10 aircraft. The charge represents the
Company's best estimate of the expected loss based upon the
anticipated method of disposition. However, should the ultimate
method of disposition differ, the actual loss could be different
than the amount estimated.
4. In the third quarter of 1993, AMR repurchased approximately $59
million in face value of long-term debt. The repurchase resulted
in an extraordinary loss of $12 million ($7 million after tax)
5. Accumulated depreciation of owned equipment and property at
September 30, 1994 and December 31, 1993 was $5.4 billion and
$4.9 billion, respectively. Accumulated amortization of
equipment and property under capital leases at September 30, 1994
and December 31, 1993 was $862 million and $760 million,
respectively.
6.In April 1994 AMR signed a comprehensive 20-year services ag
reement with Canadian Airlines International, Ltd. (CAI). Among
the services AMR will provide CAI are accounting, data processing
and communications operations, operations planning, pricing and
yield management, international services, passenger services
procedures training, and U. S. originating reservations activity.
In April 1994 AMR also made a $177 million investment in CAI,
giving it approximately a one-third economic interest in the
company.
7. In October 1994 AMR offered to exchange up to $1.1 billion in
principal amount of 6.125% subordinated convertible debentures
maturing in 2024 for up to all of its outstanding convertible
preferred stock. Each $1,000 debenture will be convertible into
common stock of AMR at a conversion price of $79 per share,
equivalent to 12.658 shares per $1,000 debenture.
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Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
RESULTS OF OPERATIONS
Summary AMR recorded net earnings of $205 million ($2.47 per common
share primary, $2.27 fully diluted) for the three months ended
September 30, 1994, compared with net earnings of $118 million
($1.33 per common share primary, $1.26 per common share fully
diluted) for the same period in 1993. AMR's third quarter operating
income increased 31.5 percent to $489 million.
For the nine months ended September 30, 1994, AMR recorded net
earnings of $351 million ($3.95 per common share primary, $3.89 per
common share fully diluted) compared with net earnings of $143
million ($1.30 per common share, both primary and fully diluted) for
the same period of 1993. AMR's operating income improved 23.1
percent to $1.0 billion.
AMR's results for the nine months ended September 30, 1994, included
a $49 million positive adjustment ($29 million after tax) to
passenger revenues produced by a change in the Company's estimate of
the usage patterns of miles sold to participating companies in
American's AAdvantage frequent flyer program.
The results for the nine months ended September 30, 1993, included a
positive $115 million adjustment ($67 million net of related
commission expense and taxes) to passenger revenues for a change in
estimate related to certain earned passenger revenues and a $125
million charge ($79 million after tax) for the retirement of 31
McDonnell Douglas DC-10 aircraft.
The improvement in AMR's results reflected better performance by
each of the Company's three business units - the Air Transportation
Group, which includes American Airlines, Inc.'s Passenger and Cargo
divisions and AMR Eagle, Inc.; The SABRE Group, which includes
AMR's information technology businesses; and the Management
Services Group, which includes AMR's airline management, aviation
services, training, consulting, and investment service activities.
The following sections provide a discussion of AMR's results by
reporting segment. A description of the businesses in each
reporting segment is included in AMR's Annual Report on Form 10-K
for the year ended December 31, 1993.
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RESULTS OF OPERATIONS (CONTINUED)
For the Three Months Ended September 30, 1994 and 1993
AIR TRANSPORTATION GROUP
FINANCIAL HIGHLIGHTS
(in millions) Three Months Ended September 30,
1994 993
Revenues
Passenger - American Airlines $ 3,370 $ 3,447
- AMR Eagle 220 191
Cargo 163 156
Other 170 134
3,923 3,928
Expenses
Wages, salaries and benefits 1,226 1,200
Aircraft fuel 421 464
Commission to agents 346 401
Depreciation and amortization 242 238
Other operating expenses 1,323 1,352
Total operating expenses 3,558 3,655
Operating Income 365 273
Other Income (Expense) (139) (139)
Earnings Before Income Taxes $ 226 $ 134
Revenues
The Company's plan to maximize Passenger division revenue per
available seat mile (ASM) by reducing capacity and optimizing the
deployment of flight assets resulted in a 1.5 percent increase in
passenger traffic on a 5.0 percent decline in ASMs. As a result,
passenger load factor increased 4.3 points and revenue per ASM
improved by 2.9 percent. Average stage length increased
approximately 5.8 percent, contributing to a decline in Passenger
division yield since fares on longer trips tend to be lower on a per
ASM basis. In addition, yields continued to be hampered by
competitive fare actions and the impact of low fare carriers in
certain domestic markets.
American's passenger revenues decreased 2.2 percent, $77 million, in
the third quarter of 1994. Passenger revenue yield per passenger
mile decreased 3.6 percent to 12.48 cents in the third quarter.
Domestic yields dropped 4.7 percent while international yields
increased 1.1 percent.
The decrease in American's ASMs is the result of retiring 56
aircraft (23 McDonnell Douglas DC-10 and 33 Boeing 727 aircraft) and
leasing two McDonnell Douglas MD-11 aircraft, partially offset by
the addition of 27 new aircraft (17 Fokker F100, seven Boeing 757
and three Boeing 767 aircraft) since September 30, 1993.
American's domestic traffic increased 0.2 percent while capacity was
reduced 5.7 percent. International traffic grew 4.3 percent while
capacity decreased 3.1 percent. The growth in international traffic
was in Latin America, which increased 4.9 percent on a capacity
decrease of 1.0 percent and in Europe where traffic increased 4.5
percent with a capacity decrease of 5.6 percent.
Passenger revenues of the AMR Eagle carriers increased 15.2 percent,
$29 million, primarily due to the expansion of regional operations
into new and larger markets. Traffic on the AMR Eagle carriers
increased 16.3 percent on a capacity increase of 19.4 percent. The
increase in the AMR Eagle carriers' ASMs is the result of the
addition of 25 aircraft since September 30, 1993 (11 64-seat Super
ATR and 14 34-seat Saab 340 aircraft), partially offset by the
retirement of 25 aircraft (23 19-seat Jetstream 31 and two 36-seat
Shorts 360 aircraft.)
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RESULTS OF OPERATIONS (CONTINUED)
Cargo revenues increased 4.5%, $7 million, as a result of an 11.0
percent increase in American's cargo volumes partially offset by a
6.4 percent decline in yields.
Other revenues increased 26.9%, $36 million, primarily as a result
of an increase in aircraft rental and servicing revenues.
Expenses
American's capacity or ASMs decreased 5.0 percent in the third
quarter of 1994 primarily as a result of the fleet changes mentioned
previously. The Air Transportation Group's operating expenses
decreased 2.7 percent, $97 million. Since capacity decreased more
rapidly than expenses, American's Passenger Division operating
expenses per ASM increased 0.2 percent to 8.08 cents. Wages,
salaries and benefits increased 2.2 percent, $26 million, due to
salary adjustments for existing employees partially offset by a 3.7
percent reduction in the average number of equivalent employees.
Aircraft fuel expense fell 9.3 percent, $43 million, due primarily
to a 7.1 percent decline in gallons consumed by American combined
with a 3.2 percent decrease in American's average price per gallon.
Commissions to agents decreased 13.7 percent, $55 million, due
principally to the decrease in passenger revenues and to a change in
classification of certain international commissions. New aircraft
acquisitions and other capital expenditures raised depreciation and
amortization 1.7 percent, $4 million. Other operating expenses,
consisting of aircraft rentals, other rentals and landing fees, food
service costs, maintenance costs and other miscellaneous operating
expenses decreased 2.1 percent, $29 million. Maintenance expenses
were lower as a result of retiring older jet aircraft from the fleet
and increased operating efficiencies as well as a more vigorous
maintenance warranty recovery effort. Booking fee expense increased
18.4%, $12 million, due to significant fare activity in the third
quarter of 1994.
AIR TRANSPORTATION GROUP OPERATING STATISTICS
Three Months Ended September 30, Percent
(Unaudited) 1994 1993 Change
American Airlines Passenger
Division:
Revenue passenger miles 27,011 26,622 1.5
(millions)
Available seat miles (millions) 39,736 41,812 (5.0)
Passenger load factor 68.0% 63.7% 4.3 pts.
Passenger revenue yield
per passenger mile (cents) 12.48 12.95 (3.6)
Passenger revenue per
available seat mile (cents) 8.48 8.24 2.9
Operating expenses
per available seat mile (cents) 8.08 8.06 0.2
Fuel consumption (gallons, in 711 765 (7.1)
millions)
Fuel price per gallon (cents) 56.9 58.8 (3.2)
American Airlines Cargo Division:
Cargo ton miles (millions) 504 454 11.0
Revenue yield per ton mile 31.96 34.14 (6.4)
(cents)
AMR Eagle, Inc.:
Revenue passenger miles 692 595 16.3
(millions)
Available seat mile (millions) 1,192 998 19.4
Passenger load factor 58.1% 59.6% (1.5) pts.
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RESULTS OF OPERATIONS (CONTINUED)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(in millions)
Three Months Ended September 30,
1994 1993
Revenues $ 393 $ 356
Expenses
Wages, salaries and benefits 124 105
Depreciation and amortization 44 44
Other operating expenses 115 122
Total operating expenses 283 271
Operating Income 110 85
Other Income (Expense) (12) (1)
Earnings Before Income Taxes $ 98 $ 84
Revenues
Revenues for The SABRE Group increased 10.4 percent, $37 million,
primarily due to increased booking fee revenues resulting from
growth in booking volumes due to continued air fare initiatives,
increases in average fees per booking collected from participating
vendors, and the introduction of a premium product.
Expenses
Wages, salaries and benefits increased 18.1 percent, $19 million,
due to a 4.4 percent increase in the average number of equivalent
employees and wage and salary increases. Other operating expenses
decreased 5.7 percent, $7 million, due to a decrease in maintenance
costs on computer equipment partially offset by higher incentive
payments to travel agents.
AMR MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(in millions)
Three Months Ended September 30,
1994 1993
Revenues $ 136 $ 120
Expenses
Wages, salaries and benefits 41 27
Other operating expenses 81 79
Total operating expenses 122 106
Operating Income 14 14
Other Income (Expense) (2) (9)
Earnings Before Income Taxes $ 12 $ 5
Revenues
Revenues for the AMR Management Services Group increased 13.3
percent, $16 million. AMR Services' revenues increased 13.0
percent, $10 million, primarily as a result of strong domestic fuel
sales, expansion of European operations, and the acquisition of an
additional domestic fixed-base operator in November 1993. Revenues
of AMR Training and Consulting Group, increased by approximately $3
million in the third quarter of 1994.
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RESULTS OF OPERATIONS (CONTINUED)
Expenses
Wages, salaries and benefits increased 51.9 percent, $14 million,
due primarily to a 16.6 percent increase in the average number of
equivalent employees driven by the acquisition and startup of the
new operations mentioned above.
Other Income (Expense)
Other Income (Expense) decreased 77.8%, $7 million, due primarily to
income accrued for dividends on the company's investment in CAI.
For the Nine Months Ended September 30, 1994 and 1993
AIR TRANSPORTATION GROUP
FINANCIAL HIGHLIGHTS
(in millions)
Nine Months Ended September 30,
1994 1993
Revenues
Passenger - American Airlines $ 9,665 $ 10,058
- AMR Eagle 608 536
Cargo 484 472
Other 458 402
11,215 11,468
Expenses
Wages, salaries and benefits 3,669 3,622
Aircraft fuel 1,204 1,434
Commission to agents 1,011 1,112
Depreciation and amortization 768 728
Other operating expenses 3,865 3,996
Total operating expenses 10,517 10,892
Operating Income 698 576
Other Income (Expense) (424) (552)
Earnings Before Income Taxes $ 274 $ 24
Revenues
The Company's plan to maximize Passenger division revenue per
available seat mile (ASM) by reducing capacity and optimizing the
deployment of flight assets resulted in a 1.1 percent decrease in
passenger traffic on a 6.3 percent decline in ASMs. As a result,
passenger load factor increased 3.4 points and revenue per ASM
improved by 2.7 percent. Average stage length increased
approximately 6.3 percent, contributing to a decline in Passenger
division yield since fares on longer trips tend to be lower on a per
ASM basis. In addition, yields continued to be hampered by
competitive fare actions and the impact of low fare carriers in
certain domestic markets.
American's passenger revenues decreased 3.9 percent, $393 million,
in the first nine months of 1994. Passenger revenue yield per
passenger mile decreased 2.8 percent to 13.09 cents in 1994.
Domestic yields dropped 4.2 percent while international yields
increased 1.1 percent.
The decrease in American's ASMs is the result of retiring 56
aircraft (23 McDonnell Douglas DC-10 and 33 Boeing 727 aircraft) and
leasing two McDonnell Douglas MD-11 aircraft, partially offset by
the addition of 27 new aircraft (17 Fokker F100, seven Boeing 757
and three Boeing 767 aircraft) since September 30, 1993.
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RESULTS OF OPERATIONS (CONTINUED)
For the first nine months of 1994 compared to the same period in
1993, American's domestic traffic decreased 2.6 percent on capacity
reductions of 7.1 percent and international traffic grew 2.7 percent
on a capacity reduction of 4.3 percent. The change in international
traffic was driven by 7.4 percent growth in Latin America with a
capacity decrease of 0.1 percent, offset by a 1.1 percent decrease
in traffic to Europe primarily driven by a capacity reduction of 9.0
percent.
Passenger revenues of the AMR Eagle carriers increased 13.4 percent,
$72 million, primarily due to the expansion of regional operations
into larger markets. Traffic on the AMR Eagle carriers increased
19.2 percent, while capacity grew 16.1 percent.
Cargo revenues increased 2.5 percent, $12 million, driven by a 8.5
percent increase in American's domestic and international cargo
volumes, partially offset by a decrease in yields of 6.0 percent
brought about by strong price competition resulting from excess
industry capacity.
Other revenues increased 13.9%, $56 million, primarily as a result
of an increase in aircraft rental and servicing revenues.
Expenses
American's capacity or ASMs decreased 6.3 percent in the first nine months of
1994 primarily as a result of the fleet changes mentioned previously. Air
Transportation Group's operating expenses decreased 3.4 percent, $375 million.
Because capacity decreased more rapidly than expenses, American's passenger
division cost per ASM increased by 1.5 percent to 8.36 cents. Wages, salaries
and benefits rose 1.3 percent, $47 million, due primarily to salary adjustments
for existing employees, partially offset by a 3.7 percent reduction in the
average number of equivalent employees. Aircraft fuel expense decreased 16.0
percent, $230 million, due to an 8.9 percent decrease in American's average
price per gallon, combined with a 8.4 percent decrease in gallons consumed by
American. Commissions to agents decreased 9.1 percent, $101 million, due
principally to decreased passenger revenues and a reduction in the percentage of
American's revenue subject to commissions. New aircraft acquisitions and other
capital improvements raised depreciation and amortization costs 5.5 percent, $40
million. Other operating expenses, consisting of aircraft rentals, other
rentals and landing fees, food service costs, maintenance costs and other
miscellaneous operating expenses decreased 3.3 percent, $131 million, primarily
due to lower maintenance costs as a result of retiring older jet aircraft from
the fleet, increased operating efficiencies as well as a more vigorous
maintenance warranty recovery effort. Food costs and landing fees fell as a
result of declines in traffic and capacity, respectively.
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RESULTS OF OPERATIONS (CONTINUED)
AIR TRANSPORTATION GROUP OPERATING STATISTICS
Nine Months Ended September 30, Percent
(Unaudited) 1994 1993 Change
American Airlines Passenger
Division:
Revenue passenger miles 73,833 74,656 (1.1)
(millions)
Available seat miles (millions) 114,404 122,149 (6.3)
Passenger load factor 64.5% 61.1% 3.4 pts.
Passenger revenue yield
per passenger mile (cents) 13.09 13.47 (2.8)
Passenger revenue per
available seat mile (cents) 8.45 8.23 2.7
Operating expenses
per available seat mile (cents) 8.36 8.24 1.5
Fuel consumption (gallons, in 2,055 2,244 (8.4)
millions)
Fuel price per gallon (cents) 56.5 62.0 (8.9)
Operating aircraft at period
end period 650 681 (4.6)
American Airlines Cargo Division:
Cargo ton miles (millions) 1,441 1,328 8.5
Revenue yield per ton mile (cents) 33.17 35.27 (6.0)
AMR Eagle, Inc.:
Revenue passenger miles (millions) 1,874 1,572 19.2
Available seat miles (millions) 3,308 2,850 16.1
Passenger load factor 56.7% 55.2% 1.5 pts.
Operating aircraft at period end
period 275 275 -
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RESULTS OF OPERATIONS (CONTINUED)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(in millions)
Nine Months Ended September 30,
1994 1993
Revenues $ 1,167 $ 1,033
Expenses
Wages, salaries and benefits 367 309
Depreciation and amortization 135 131
Other operating expenses 351 352
Total operating expenses 853 792
Operating Income 314 241
Other Income (Expense) (22) (4)
Earnings Before Income Taxes $ 292 $ 237
Revenues
Revenues for The SABRE Group increased 13.0 percent, $134 million,
primarily due to increased booking fee revenues resulting from
growth in booking volumes due to continued air fare initiatives,
increases in average fees per booking collected from participating
vendors, and the introduction of a premium product.
Expenses
Wages, salaries and benefits increased 18.8 percent, $58 million,
due to wage and salary increases and a 5.4 percent increase in the
average number of equivalent employees.
AMR MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(in millions)
Nine Months Ended
September 30,
1994 1993
Revenues $ 394 $ 331
Expenses
Wages, salaries and benefits 119 77
Other operating expenses 238 219
Total operating expenses 357 296
Operating Income 37 35
Other Income (Expense)
(17) (22)
Earnings Before Income Taxes $ 20 $ 13
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RESULTS OF OPERATIONS (CONTINUED)
Revenues
Revenues for the AMR Management Service Group increased 19.0
percent, $63 million. AMR Services' revenues increased 17.9
percent, $38 million, primarily as a result of strong domestic fuel
and deicing service sales, expansion of European operations, and the
acquisition of an additional domestic fixed-base operator in
November 1993. Americas Ground Services, which began operations in
the second quarter of 1993, contributed $21 million in revenues.
Revenues of AMR Training and Consulting Group, which began
operations in the first quarter of 1993, increased by approximately
$9 million in the first nine months of 1994.
Expenses
Wages, salaries and benefits increased 54.5 percent, $42 million,
due primarily to a 32.7 percent increase in the average number of
equivalent employees. Other operating expenses increased 8.7
percent, $19 million, due primarily to the startup of operations for
Americas Ground Services and AMR Training and Consulting Group and
the expansion of AMR Services.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the nine month period
ended September 30, 1994, was $1.7 billion compared to $1.4 billion
in 1993. Capital expenditures for the first nine months of 1994
were $745 million and included the acquisition of 17 jet aircraft by
American: three Boeing 757-200, one Boeing 767-300ER and 13 Fokker
100. AMR Eagle acquired 13 turboprop aircraft: ten Super ATRs and
three Saab 340Bs. In 1994 AMR expended $177 million to acquire an
approximate one-third economic interest in Canadian Airlines
International, Ltd. These expenditures, plus an expansion of certain
airport facilities, were financed by internally generated cash and
the issuance of long-term debt.
Financial Instruments
As part of the Company's risk management program, AMR uses a variety
of financial instruments, including interest rate swaps, fuel swap
contracts, and currency exchange agreements.
American enters into interest rate swap contracts as part of its
effort to effectively convert a portion of American's fixed-rate
obligations to floating-rate obligations. Under the contracts,
American agrees to exchange , at specific intervals, the difference
between fixed- and floating-rate amounts calculated on an agreed
upon notional principal amount. Because American's operating
results tend to be better in economic cycles with relatively high
interest rates and its capital investments tend to be financed with
long-term fixed-rate instruments, interest rate swaps in which
American pays the floating and receives the fixed rate are used to
reduce the impact of market fluctuations on American's net income.
At September 30, 1994, such interest rate swap agreements with a
notional principal amount of $2.0 billion were in effect. The net
impact of the interest rate swap program on interest expense and the
Company's weighted average borrowing rate for the periods presented
is immaterial.
American enters into fuel swap contracts to protect against
increases in jet fuel prices. Under the agreement American receives
or makes payments based on the difference between a fixed and
variable price for certain fuel commodities. At September 30, 1994,
American had agreements with broker-dealers to exchange payments on
approximately 20 percent of its remaining 1994 expected fuel needs
and approximately 10 percent of expected 1995 fuel needs. The
Company does not expect a material effect of the fuel swap program
on liquidity.
To hedge against the risk of future currency exchange rate
fluctuations on certain debt and lease obligations and related
interest payable in foreign currencies, the Company enters into
various foreign currency exchange agreements. Changes in the value
of the agreements due to exchange rate fluctuations are offset by
changes in the value of the foreign-currency-denominated debt and
lease obligations translated at the current rate.
At the present time the Company has no significant unhedged exposure
to foreign-currency-denominated assets and liabilities.
-14-
17
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
The Company is exposed to credit loss in the event of nonperformance
by counterparties on the interest rate swap, fuel swap, and foreign
currency exchange contracts, but the Company does not anticipate
nonperformance by any of these counterparties. The Company's
current credit exposure is limited to the value of contracts that
have become favorable to the Company. To manage market and credit
risks, the Company selects counterparties based upon credit ratings,
limits its exposure to a single counterparty under defined
guidelines, monitors the market position of the program and its
relative market position with each counterparty, and maintains
industry-standard security agreements with the majority of its
counterparties which may require the Company or the counterparty to
post collateral in certain situations. As of September 30, 1994, no
collateral was required under these agreements.
Environmental Matters The Company is subject to various laws and
government regulations concerning environmental matters and employee
safety and health in the U.S. and other countries. U.S. federal
laws that have a particular impact on the Company include the
Airport Noise and Capacity Act of 1990 (ANCA), the Clean Air Act,
the Resource Conservation and Recovery Act, the Clean Water Act, the
Safe Drinking Water Act, and the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA or the Superfund).
The Company is also subject to the oversight of the Occupational
Safety and Health Administration (OSHA) concerning employee safety
and health matters. The U.S. Environmental Protection Agency (EPA),
OSHA, and other federal agencies have been authorized to promulgate
regulations that have an impact on the Company's operations. In
addition to these federal activities, various states have been
delegated certain authorities under the aforementioned federal
statutes. Many state and local governments have adopted
environmental and employee safety and health laws and regulations,
some of which are similar to federal requirements. As a part of its
continuing safety, health and environmental program, the Company has
maintained compliance with such requirements without any material
adverse effect on its business.
The ANCA requires the phase-out by December 31, 1999, of Stage II
aircraft operations, subject to certain exceptions. Under final
regulations issued by the Federal Aviation Administration (FAA) in
1991, air carriers are required to reduce, by modification or
retirement, the number of Stage II aircraft in their fleets 25
percent by December 31, 1994; 50 percent by December 31, 1996; 75
percent by December 31, 1998, and 100 percent by December 31, 1999.
Alternatively, a carrier may satisfy the regulations by operating a
fleet that is at least 55 percent, 65 percent, 75 percent, and 100
percent Stage III by the dates set forth in the preceding sentence,
respectively.
The ANCA recognizes the rights of airport operators with noise
problems to implement local noise abatement programs so long as they
do not interfere unreasonably with interstate or foreign commerce or
the national air transportation system. Authorities in several
cities have promulgated aircraft noise reduction programs, including
the imposition of night-time curfews. The ANCA generally requires
FAA approval of local noise restrictions on Stage III aircraft first
effective after October 1990, and establishes a regulatory notice
and review process for local restrictions on Stage II aircraft first
proposed after October 1990. At September 30, 1994, approximately
86 percent of American's active fleet was Stage III. While American
has had sufficient scheduling flexibility to accommodate local noise
restrictions imposed to date, American's operations could be
adversely affected if locally-imposed regulations become more
restrictive or widespread.
The Clean Air Act provides that state and local governments may not
adopt or enforce aircraft emission standards unless those standards
are identical to the federal standards. The engines on American's
aircraft meet the EPA's turbine engine emissions standards.
American has been identified by the EPA as a potentially responsible
party (PRP) with respect to the following Superfund Sites:
Operating Industries, Inc., California; Cannons, New Hampshire;
Byron Barrel and Drum, New York; Palmer PSC, Massachusetts; Frontier
Chemical, New York and Duffy Brothers, Massachusetts. American has
settled the Cannons and Byron Barrel and Drum matters, and all that
remains to complete these matters are administrative tasks.
American has signed a partial consent decree with respect to
Operating Industries, Inc. With respect to the Operating
Industries, Inc., Palmer PSC, Frontier Chemical and Duffy Brothers
sites, American is one of several PRPs named at each site. Although
they are Superfund Sites, American's alleged waste disposal is minor
compared to the other PRPs.
-15-
18
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
American, along with most other tenants at Logan Airport in Boston,
have been notified under the Massachusetts State Superfund Statute
of a claim for contribution by the Massachusetts Port Authority
(Massport). Massport has claimed that American is responsible for
past and future remediation costs at the airport. American is
vigorously defending against Massport's claim.
AMR Combs Memphis, an AMR Services subsidiary, has been named a PRP
at an EPA Superfund Site in West Memphis, Tennessee. AMR Combs
Memphis' alleged involvement in the site is minor relative to the
other PRPs.
Flagship Airlines, Inc. an AMR Eagle subsidiary, has been notified
of its potential liability under New York law at an Inactive
Hazardous Waste site in Poughkeepsie, New York.
AMR does not expect these matters, individually or collectively, to
have a material impact on its financial condition, operating results
or cash flows.
Other
In October 1994 AMR offered to exchange up to $1.1 billion in
principal amount of 6.125 percent subordinated convertible
debentures maturing in 2024 for up to all of its outstanding
convertible preferred stock. Each $1,000 debenture will be
convertible into common stock of AMR at a conversion price of $79
per share, equivalent to 12.658 shares per $1,000 debenture.
The Company has continued the course of change initiated in 1993
under the Transition Plan. The majority of the Company's efforts to
date have focused on reducing airline costs and restoring airline
operations to adequate and sustainable profitability. Since early
1993 the Air Transportation Group has removed approximately 90 jet
aircraft from the fleet; withdrawn jet service from over 90 markets;
eliminated service to almost 30 cities; and reduced its workforce by
over 5,000 employees. In the fourth quarter of 1994 AMR expects to
record a significant charge related to early retirement programs and
staff reductions in the Air Transportation Group. In addition, AMR
is evaluating further restructuring to its workforce and route
network in 1995, which may result in additional charges for the 1994
fourth quarter. At the present time the amount of the fourth
quarter charges cannot be reasonably estimated. While it is
expected that these charges will have a material impact on fourth
quarter results of operations, they are not expected to have a
significant impact on the financial position or liquidity of AMR.
-16-
19
PART II
Item 2- Legal Proceedings
In December 1992, the U S. Department of Justice filed an antitrust
lawsuit in the U S. District Court for the District of Columbia
under Section 1 of the Sherman Act against several airlines,
including the Company, alleging price fixing based upon the
industry's exchange of fare information through the Airline Tariff
Publishing Company. In March 1994, the Company and the remaining
defendants in the case agreed to settle the lawsuit without
admitting liability by entering into a stipulated final judgment
that prohibits or restricts certain pricing practices including the
announcement of fare increases before their effective date. This
settlement has been approved by the Court and is now final.
American has been sued in two lass action cases that have been
consolidated in the Circuit Court of Cook County, Illinois, in
connection with certain changes made to American's AAdvantage
frequent flyer program in May, 1988. (Wolens, et el v. American
Airlines, Inc., No. 88 CH 7554, and Tucker v. American Airlines,
Inc., No. 89 CH 199.) In both cases, the plaintiffs seek to
represent all persons who joined the AAdvantage program before May
1988. The complaints allege that, on that date, American
implemented changes that limited the number of seats available to
participants traveling on certain awards and established holiday
blackout dates during which no AAdvantage seats would be available
for certain awards. The plaintiffs allege that these changes
breached American's contracts with AAdvantage members and were in
violation of the Illinois Consumer Fraud and Deceptive Business
Practice Act (Consumer Fraud Act). Plaintiffs seek money damages of
an unspecified sum, punitive damages, costs, attorneys fees and an
injunction preventing the Company from making any future changes
that would reduce the value of AAdvantage benefits. American moved
to dismiss both complaints, asserting that the claims are preempted
by the Federal Aviation Act and barred by the Commerce Clause of the
U. S. Constitution.
The trial court denied American's preemption motions, but certified
its decision for interlocutory appeal. In December 1990, the
Illinois Appellate Court held that plaintiffs' claims for an
injunction are preempted by the Federal Aviation Act, but that
plaintiffs' claims for money damages could proceed. On March 12,
1992, the Illinois Supreme Court affirmed the decision of the
Appellate Court. American sought a writ of certiorari from the U.
S. Supreme Court; and on October 5, 1992, that Court vacated the
decision of the Illinois Supreme Court and remanded the cases for
reconsideration in light of the U. S. Supreme Court's decision in
Morales v. TWA, et al, which interpreted the preemption provisions
of the Federal Aviation Act very broadly. On December 16, 1993, the
Illinois Supreme Court rendered its decision on remand, holding that
plaintiffs' claims seeking an injunction were preempted, but that
identical claims for compensatory and punitive damages were not
preempted. On February 8, 1994, American filed petition for a writ
of certiorari in the U. S. Supreme Court. The Illinois Supreme
Court granted American's motion to stay the state court proceeding
pending disposition of American's petition in the U.S. Supreme
Court. The matter was argued before the U. S. Supreme Court on
November 1, 1994.
-17-
20
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report:
Part I - Exhibit 11(a): Computation of primary
earnings per share for the three
and nine months ended September
30, 1994 and 1993.
Part I - Exhibit 11(b): Computation of earnings per
share assuming full dilution for
the three and nine months ended
September 30, 1994 and 1993.
Part I - Exhibit 12(a): Computation of ratio of
earnings to fixed charges for
the nine months ended September
30, 1994 and 1993.
Part I - Exhibit 12(b): Computation of ratio of
earnings to combined fixed
charges and preferred stock
dividends for the nine months
ended September 30, 1994 and
1993.
(b) Reports on Form 8-K or amendments:
On October 19, 1994 AMR filed a report on Form 8-K
relative to its third quarter 1994 earnings release.
-18-
21
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
BY: /s/ Donald J. Carty
Donald J. Carty
Executive Vice President and
Chief Financial Officer
DATE: November 3, 1994
-19-
22 PART I - EXHIBIT 11(a)
AMR CORPORATION
Computation of Primary Earnings per Share
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Earnings as adjusted:
Net earnings $ 205 $ 118 $ 351 $ 143
Less:Preferred dividend
requirements 17 16 50 43
Earnings applicable to common
shares $ 188 $ 102 $ 301 $ 100
Shares, as adjusted
Average number of shares
outstanding 76 75 76 75
Add shares issued upon
assumed exercise of dilutive
options, stock appreciation rights
and warrants and shares assumed
issued for deferred stock
granted 3 3 2 2
Less assumed treasury
shares repurchased (3) (2) (2) (1)
Shares, as adjusted 76 76 76 76
Primary earnings per share $ 2.47 $ 1.33 $ 3.95 $ 1.30
-20-
23 PART I - EXHIBIT 11(b)
AMR CORPORATION
Computation of Earnings per Share
Assuming Full Dilution
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Earnings as adjusted:
Net earnings $ 205 $ 118 $ 351 $ 143
Less: Preferred Dividend
Requirements 17 16 50 43
Earnings applicable to common
shares 188 102 301 100
Adjustments:
Add:
Interest upon assumed
conversion of convertible debt
(net of tax) - 6 - (a)
Dividends upon assumed
conversion of convertible
of convertible preferred stock 17 16 50 (a)
Earnings, as adjusted $ 205 $ 124 $ 351 $ 100
Shares, as adjusted:
Average number of shares
outstanding 76 75 76 75
Add shares issued upon:
Assumed conversion of
convertible debt - 7 - (a)
Assumed conversion of
preferred stock 14 14 14 (a)
Assumed exercise of dilutive
options, stock appreciation
rights and warrants and
shares assumedissued
for deferred stock granted 3 3 2 2
Less assumed treasury
shares repurchased (3) (1) (2) (1)
Shares, as adjusted
90 98 90 76
Earnings per share assuming
full dilution $ 2.27 $ 1.26 $ 3.89 $ 1.30
(a) Conversion not assumed as results would be anti-dilutive.
-21-
24 PART I -EXHIBIT 12(a)
AMR CORPORATION.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Nine Months Ended
September 30,
1994 1993
(in millions of dollars)
Earnings:
Earnings before income taxes $ 586 $ 274
Add: Total fixed charges (per below) 949 1,014
Less: Interest capitalized 17 41
Total earnings $ 1,518 $ 1,247
Fixed charges:
Interest $ 463 $ 507
Portion of rental expense representative
of the interest factor 481 501
Amortization of debt expense 5 6
Total fixed charges $ 949 $ 1,014
Ratio of earnings to fixed charges 1.60 1.23
-23-
25 PART I -EXHIBIT 12(b)
AMR CORPORATION.
COMPUTATION OF RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Nine Months Ended
September 30,
1994 1993
(in millions of dollars)
Earnings:
Earnings before income taxes $ 586 $ 274
Add: Total fixed charges (per below) 1,032 1,093
Less: Interest capitalized 17 41
Total earnings $ 1,601 $ 1,326
Fixed charges:
Interest $ 463 $ 507
Portion of rental expense representative
of the interest factor 481 501
Preferred dividend requirement 83 79
Amortization of debt expense 5 6
Total fixed charges $ 1,032 $ 1,093
Ratio of earnings to fixed charges 1.55 1.21
-23-
5
1,000,000
QTR-3 9-MOS OTHER
DEC-31-1994 DEC-31-1994 DEC-31-1994
SEP-30-1994 SEP-30-1994 SEP-30-1994
0 0 31
0 0 1026
0 0 1131
0 0 17
0 0 675
0 0 3362
0 0 20315
0 0 6252
0 0 20288
0 0 4742
0 0 0
0 0 2117
0 0 0
0 0 1081
0 0 1397
0 0 20288
0 0 0
4233 12142 0
0 0 0
3744 11093 0
0 0 0
0 0 0
157 463 0
336 586 0
131 235 0
205 351 0
0 0 0
0 0 0
0 0 0
205 351 0
2.47 3.95 0
2.27 3.89 0
