1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Period Ended September 30, 1995.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to
.
Commission file number 1-8400.
AMR Corporation
(Exact name of registrant as specified in its charter)
Delaware 75-1825172
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, (817) 963-
including area code 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 periods 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 practical
date.
Common Stock, $1 par value - 76,351,889 as of October 13, 1995
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INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Information
Consolidated Statement of Operations -- Three months ended
September 30, 1995 and 1994; Nine months ended September 30,
1995 and 1994
Condensed Consolidated Balance Sheet -- September 30, 1995 and
December 31, 1994
Condensed Consolidated Statement of Cash Flows -- Nine months
ended September 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements --
September 30, 1995
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
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PART 1. FINANCIAL INFORMATION
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Revenues
Airline Group:
Passenger - American
Airlines, Inc. $3,513 $3,370 $10,051 $9,665
- AMR Eagle, Inc. 217 220 575 608
Cargo 167 163 503 484
Other 188 170 523 458
4,085 3,923 11,652 11,215
The SABRE Group 418 376 1,232 1,107
Management Services Group 133 127 398 383
Less: Intergroup revenues (191) (193) (560) (563)
Total operating revenues 4,445 4,233 12,722 12,142
Expenses
Wages, salaries and
benefits 1,465 1,383 4,334 4,136
Aircraft fuel 416 421 1,193 1,204
Commissions to agents 340 346 981 1,011
Depreciation and
amortization 314 297 947 936
Other rentals and
landing fees 229 216 661 632
Aircraft rentals 167 172 504 523
Food service 179 172 507 505
Maintenance materials
and repairs 170 149 478 441
Other operating expenses 644 588 1,862 1,705
Total operating expenses 3,924 3,744 11,467 11,093
Operating Income 521 489 1,255 1,049
Other Income (Expense)
Interest income 15 13 42 26
Interest expense (166) (157) (524) (463)
Interest capitalized 3 6 11 17
Miscellaneous - net 12 (15) (5) (43)
(136) (153) (476) (463)
Earnings Before Income
Taxes and
Extraordinary Loss 385 336 779 586
Income tax provision 150 131 314 235
Earnings Before
Extraordinary Loss 235 205 465 351
Extraordinary Loss, Net of
Tax Benefit (4) - (17) -
Net Earnings 231 205 448 351
Preferred stock dividends 2 17 4 50
Earnings Applicable to
Common Shares $ 229 $ 188 $ 444 $ 301
Continued on next page.
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AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
(Unaudited) (In millions, except per share amounts)
1
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Earnings (Loss) Per Common
Share
Primary:
Before extraordinary loss $ 3.01 $ 2.47 $ 6.00 $ 3.95
Extraordinary loss (0.05) - (0.23) -
Net Earnings $ 2.96 $ 2.47 $ 5.77 $ 3.95
Fully Diluted:
Before extraordinary
loss $ 2.68 $ 2.27 $ 5.45 $ 3.89
Extraordinary loss (0.04) - (0.19) -
Net Earnings $ 2.64 $ 2.27 $ 5.26 $ 3.89
Number of common shares
used in computations
Primary 77 76 77 76
Fully diluted 91 90 91 90
The accompanying notes are an integral part of these financial statements.
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AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
September December
30, 31,
1995 1994
(Unaudited) (Note)
Assets
Current Assets
Cash $ 108 $ 23
Short-term investments 1,082 754
Receivables, net 1,560 1,206
Inventories, net 614 678
Other current assets 499 457
Total current assets 3,863 3,118
Equipment and Property
Flight equipment, net 10,053 9,888
Purchase deposits for flight equipment 62 116
10,115 10,004
Other equipment and property, net 1,960 2,016
12,075 12,020
Equipment and Property Under Capital Leases
Flight equipment, net 1,617 1,705
Other equipment and property, net 165 173
1,782 1,878
Route acquisition costs, net 1,011 1,032
Other assets, net 1,337 1,438
$ 20,068 $ 19,486
Note: The balance sheet at December 31, 1994 has been derived
from the audited financial statements at that date but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
The accompanying notes are an integral part of these financial
statements.
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AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
September December
30, 31,
1995 1994
(Unaudited) (Note)
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 929 $ 920
Accrued liabilities 2,148 1,803
Air traffic liability 1,701 1,473
Current maturities of long-term debt 563 590
Current obligations under capital leases 142 128
Total current liabilities 5,483 4,914
Long-term debt, less current maturities 5,003 5,603
Obligations under capital leases, less 2,155 2,275
current obligations
Deferred income taxes 447 279
Other liabilities, deferred gains, deferred
credits and postretirement benefits 3,182 3,035
Stockholders' Equity
Convertible preferred stock 78 78
Common stock 76 76
Additional paid-in capital 2,235 2,212
Retained earnings 1,409 1,014
3,798 3,380
$ 20,068 $ 19,486
Note: The balance sheet at December 31, 1994 has been derived
from the audited financial statements at that date but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
The accompanying notes are an integral part of these financial
statements.
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AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Nine Months Ended
September 30,
1995 1994
Net Cash Provided by Operating Activities $1,918 $1,674
Cash Flow from Investing Activities:
Capital expenditures (813) (745)
Net increase in short-term investments (328) (503)
Investment in Canadian Airlines
International, Ltd. - (177)
Other, net 67 18
Net cash used for investing activities (1,074) (1,407)
Cash Flow from Financing Activities:
Proceeds from issuance of long-term debt - 146
Other short-term borrowings - 200
Payments on other short-term borrowings - (200)
Payments on long-term debt and capital lease
obligations (755) (396)
Payment of preferred stock dividends (4) (49)
Net cash used for financing activities (759) (299)
Net increase (decrease) in cash 85 (32)
Cash at beginning of period 23 63
Cash at end of period $ 108 $ 31
Cash Payments (Refunds) For:
Interest (net of amounts capitalized) $ 503 $ 428
Income taxes (44) (32)
Financing Activities not Affecting Cash:
Capital lease obligations incurred $ - $ 280
The accompanying notes are an integral part of
these financial statements.
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, these financial statements contain
all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position, results of
operations and cash flows for the periods indicated. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the AMR
Corporation annual report on Form 10-K for the year ended
December 31, 1994.
2.Certain amounts from 1994 have been reclassified to conform
with 1995 presentation. Beginning January 1, 1995, the
results of two AMR units -- TeleService Resources (TSR) and
Data Management Services (DMS) -- are reported in the
Management Services Group and the results of AMR Training and
Consulting Group (AMRTCG) are reported in The SABRE Group.
Previously, the results of TSR and DMS had been included in
The SABRE Group, and the results of AMRTCG had been included
in the Management Services Group.
Effective July 1, 1995, the results of AMR Leasing Corporation
(AMRLC) are reported in the Airline Group. Previously, the
results of AMRLC had been included in the Management Services
Group. The results for the nine months ended September 30,
1995, have been restated to reflect this change.
3.In July 1991, American entered into a five-year agreement
whereby American transfers, on a continuing basis and with
recourse to the receivables, an undivided interest in a
designated pool of receivables. Undivided interests in new
receivables are transferred daily as collections reduce
previously transferred receivables. At December 31, 1994,
receivables are presented net of approximately $112 million of
such transferred receivables. At September 30, 1995, no
receivables were transferred under the terms of the agreement.
4.Accumulated depreciation of owned equipment and property at
September 30, 1995 and December 31, 1994, was $5.9 billion and
$5.5 billion, respectively. Accumulated amortization of
equipment and property under capital leases at September 30,
1995 and December 31, 1994, was $870 million and $898 million,
respectively.
5.In April 1995, American announced an agreement to sell 12 of
its McDonnell Douglas MD-11 aircraft to Federal Express
Corporation (FedEx), with delivery of the aircraft between
1996 and 1999. In addition, American has the option to sell
its remaining seven MD-11 aircraft to FedEx with deliveries
between 2000 and 2002. At the same time the two companies
signed a separate six-year maintenance contract under the
terms of which American will perform work on FedEx's aircraft
fleet.
6.During the nine months ended September 30, 1995, AMR
repurchased and retired prior to scheduled maturity $362
million in face value of long-term debt, net of sinking
funding balances. The repurchases and retirements resulted in
an extraordinary loss of $6 million ($4 million net of tax
benefit) and $27 million ($17 million net of tax benefit) for
the three and nine months ended September 30, 1995,
respectively.
7.During 1994, the Company changed its estimate of the usage
patterns of miles awarded by participating companies in
American's AAdvantage frequent flyer program. The positive
impact of the change in estimate on passenger revenues for the
nine months ended September 30, 1994, was $49 million.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
For the Three Months Ended September 30, 1995 and 1994
Summary AMR recorded net earnings for the three months ended
September 30, 1995, of $229 million after preferred stock
dividends, or $2.96 per common share primary, $2.64 fully
diluted. This compares with net earnings of $188 million after
preferred stock dividends, or $2.47 per common share primary,
$2.27 fully diluted for the third quarter of 1994. Included in
net earnings for the three months ended September 30, 1995, is
an extraordinary loss of $6 million ($4 million net of tax
benefit) resulting from the retirement of $123 million of debt
(net of sinking fund balances of $23 million) prior to scheduled
maturity. AMR's operating income improved 6.5 percent or $32
million.
AMR's improved results for the third quarter reflect better performance
by each of the Company's three business units - the Airline
Group, which includes American Airlines, Inc.'s Passenger and
Cargo Divisions and AMR Eagle, Inc.; The SABRE Group, which
includes AMR's information technology and consulting businesses;
and the Management Services Group, which includes AMR's airline
management, aviation services, 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, 1994.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
September 30,
1995 1994
Revenues
Passenger - American Airlines, Inc. $3,513 $3,370
- AMR Eagle, Inc. 217 220
Cargo 167 163
Other 188 170
4,085 3,923
Expenses
Wages, salaries and benefits 1,290 1,226
Aircraft fuel 416 421
Commission to agents 340 346
Depreciation and amortization 268 251
Other operating expenses 1,375 1,307
Total operating expenses 3,689 3,551
Operating Income 396 372
Other Income (Expense) (136) (144)
Earnings Before Income Taxes $ 260 $ 228
Average number of equivalent employees 89,700 90,200
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Results of Operations (continued)
OPERATING STATISTICS
Three Months Ended
September 30,
1995 1994
American Airlines, Inc.
Passenger Division
Revenue passenger miles (millions) 27,814 27,011
Available seat miles (millions) 40,376 39,736
Passenger revenue yield per passenger mile 12.63 12.48
(cents)
Passenger revenue per available seat mile 8.70 8.48
(cents)
Operating expenses per available seat mile 8.31 8.08
(cents)
Passenger load factor 68.9% 68.0%
Breakeven load factor 61.6% 60.8%
Fuel consumption (gallons, in millions) 712 711
Fuel price per gallon (cents) 56.3 56.9
Operating aircraft at period-end 646 650
Cargo Division
Cargo ton miles (millions) 498 504
Revenue yield per ton mile (cents) 33.09 31.96
AMR Eagle, Inc.
Revenue passenger miles (millions) 693 692
Available seat miles (millions) 1,230 1,192
Passenger load factor 56.3% 58.1%
Operating aircraft at period-end 267 275
Operating aircraft at September 30, 1995, included:
Jet Aircraft: < Regional Aircraft:
Airbus A300-600R 35 ATR 42 46
Boeing 727-200 77 Super ATR 33
Boeing 757-200 87 Jetstream 32 46
Boeing 767-200 8 Saab 340A 15
Boeing 767-200 ER 22 Saab 340B 102
Boeing 767-300 ER 41 Shorts 360 25
Fokker 100 75 Total 267
McDonnell Douglas DC-10-10 17
McDonnell Douglas DC-10-30 5
McDonnell Douglas MD-11 19
McDonnell Douglas MD-80 260
Total 646
88.0% of the jet aircraft fleet is Stage III, a classification of
aircraft meeting the most stringent noise standards promulgated
by the Federal Aviation Administration.
Average aircraft age is 8 years for jet aircraft and 4 years for
regional aircraft.
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Results of Operations (continued)
The Airline Group's revenues increased $162 million or 4.1
percent in the third quarter of 1995 versus the same period last
year. American's passenger revenues increased by 4.2 percent,
$143 million. American's yield (the average amount one
passenger pays to fly one mile) of 12.63 cents increased by 1.2
percent compared to the same period in 1994. Domestic yields
increased 1.2 percent from third quarter 1994. International
yields increased 1.3 percent from third quarter 1994, due
principally to a 7.0 percent increase in Europe partially offset
by a 5.5 percent decrease in Latin America.
American's traffic or revenue passenger miles (RPMs) increased
3.0 percent to 27.8 billion miles for the quarter ended
September 30, 1995. American's capacity or available seat miles
(ASMs) increased 1.6 percent to 40.4 billion miles in the third
quarter of 1995, primarily as a result of increases in jet stage
length and aircraft productivity. Jet stage length increased
9.9 percent and aircraft productivity, as measured by miles
flown per aircraft per day, increased 2.4 percent compared with
third quarter 1994. American's domestic traffic decreased 0.6
percent on capacity decreases of 1.7 percent and international
traffic grew 11.1 percent on capacity increases of 10.0 percent.
The change in international traffic was driven by a 17.4 percent
increase in traffic to Latin America on capacity growth of 12.3
percent, and a 7.0 percent increase in traffic to Europe on a
capacity increase of 8.7 percent.
Other revenues increased 10.6 percent, $18 million, primarily
due to contract maintenance work performed by American for other
airlines and increases in airport ground services provided by
American to other airlines.
The Airline Group's operating expenses increased 3.9 percent,
$138 million. American's Passenger Division cost per ASM
increased 2.8 percent to 8.31 cents. Wages, salaries and
benefits rose 5.2 percent, $64 million, due primarily to an
increase in provisions for profit sharing and salary adjustments
for existing employees, partially offset by a 0.6 percent
reduction in the average number of equivalent employees.
Aircraft fuel expense decreased 1.2 percent, $5 million, due
primarily to a 1.1 percent decrease in American's average price
per gallon. Commissions to agents decreased 1.7 percent, $6
million, due principally to a reduction in average rates paid to
agents attributable primarily to the change in commission
structure implemented in February 1995, offset by an increase in
passenger revenues. Other operating expenses, consisting of
aircraft rentals, other rentals and landing fees, food service
costs, maintenance costs and other miscellaneous operating
expenses increased 5.2 percent, $68 million, primarily due to
increased traffic driven expenses, increases in contract
maintenance expenses and foreign currency exchange losses
attributable to unfavorable exchange rates primarily in Latin
America.
Other Income (Expense) decreased 5.6 percent or $8 million.
Interest expense (net of amounts capitalized) increased $18
million due primarily to the issuance of $1.02 billion of
convertible debentures in exchange for 2.04 million preferred
shares in 1994, and the effect of rising interest rates on
floating rate debt and interest rate swap agreements. These
increases were partially offset by decreases in interest expense
attributable to scheduled debt repayments and the repurchase and
retirement of debt prior to scheduled maturity. Interest income
increased due to higher average investment balances and higher
average rates.
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Results of Operations (continued)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(Dollars in millions)
Three Months Ended
September 30,
1995 1994
Revenues $ 418 $ 376
Expenses
Wages, salaries and benefits 112 99
Depreciation and amortization 42 42
Other operating expenses 156 126
Total operating expenses 310 267
Operating Income 108 109
Other Income (Expense) 1 (12)
Income Before Income Taxes $ 109 $ 97
Average number of equivalent employees 7,500 7,200
Revenues
Revenues for The SABRE Group increased 11.2 percent, $42 million,
primarily due to increased booking fee volume, which was
positively impacted by international expansion in Europe, Latin
America and India, booking fee price increases and AMR's services
agreement with Canadian Airlines International, Inc. (CAI).
Expenses
Wages, salaries and benefits increased 13.1 percent, $13 million,
due to wage and salary adjustments for existing employees and an
increase in the average number of equivalent employees. Other
operating expenses increased 23.8 percent, $30 million, due
primarily to costs associated with international expansion and
the CAI agreement.
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(Dollars in millions)
Three Months Ended
September 30,
1995 1994
Revenues $ 133 $ 127
Expenses
Wages, salaries and benefits 64 58
Other operating expenses 53 61
Total operating expenses 117 119
Operating Income 16 8
Other Income (Expense) - 3
Income Before Income Taxes $ 16 $ 11
Average number of equivalent employees 13,700 12,400
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Results of Operations (continued)
Revenues
Revenues for the AMR Management Services Group increased 4.7
percent, or $6 million. Revenues for Airline Management
Services, which was formed in 1994 to manage the Company's
service contracts with other airlines including CAI, contributed
$7 million to the increase. This increase was partially offset
by reduced sales of aviation services.
Expenses
Wages, salaries and benefits increased 10.3 percent, $6 million,
due primarily to an increase in the average number of equivalent
employees. Other operating expenses decreased 13.1 percent, $8
million due primarily to lower cost of goods sold attributed to
reduced sales of aviation services.
For the Nine Months Ended September 30, 1995 and 1994
Summary AMR recorded net earnings for the nine months ended
September 30, 1995, of $444 million after preferred stock
dividends, or $5.77 per common share primary, $5.26 fully
diluted. This compares with net earnings of $301 million after
preferred stock dividends, or $3.95 per common share primary,
$3.89 fully diluted for the same period in 1994. Included in
net earnings for the nine months ended September 30, 1995, is an
extraordinary loss of $27 million ($17 million net of tax
benefit) resulting from the repurchase and retirement of $362
million of debt (net of sinking fund balances of $23 million)
prior to scheduled maturity. AMR's operating income improved
19.6 percent or $206 million.
AMR's improved results for the nine months ended September 30,
1995 reflect better performance by each of the Company's three
business units - the Airline Group, which includes American
Airlines, Inc.'s Passenger and Cargo Divisions and AMR Eagle,
Inc.; The SABRE Group, which includes AMR's information
technology and consulting businesses; and the Management
Services Group, which includes AMR's airline management,
aviation services, and investment service activities.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Nine Months Ended
September 30,
1995 1994
Revenues
Passenger - American Airlines, Inc. $10,051 $9,665
- AMR Eagle, Inc. 575 608
Cargo 503 484
Other 523 458
11,652 11,215
Expenses
Wages, salaries and benefits 3,823 3,669
Aircraft fuel 1,193 1,204
Commission to agents 981 1,011
Depreciation and amortization 804 794
Other operating expenses 3,976 3,820
Total operating expenses 10,777 10,498
Operating Income 875 717
Other Income (Expense) (465) (441)
Income Before Income Taxes $ 410 $ 276
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Results of Operations (continued)
OPERATING STATISTICS
Nine Months Ended
September 30,
1995 1994
American Airlines, Inc.
Passenger Division
Revenue passenger miles (millions) 77,660 73,833
Available seat miles (millions) 116,516 114,404
Passenger revenue yield per passenger mile 12.94 13.09
(cents)
Passenger revenue per available seat mile 8.63 8.45
(cents)
Operating expenses per available seat mile 8.41 8.36
(cents)
Passenger load factor 66.7% 64.5%
Breakeven load factor 61.4% 61.0%
Fuel consumption (gallons, in millions) 2,065 2,055
Fuel price per gallon (cents) 55.7 56.5
Operating aircraft at period-end 646 650
Cargo Division
Cargo ton miles (millions) 1,519 1,441
Revenue yield per ton mile (cents) 32.71 33.17
AMR Eagle, Inc.
Revenue passenger miles (millions) 1,834 1,874
Available seat miles (millions) 3,316 3,308
Passenger load factor 55.3% 56.7%
Operating aircraft at period-end 267 275
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Results of Operations (continued)
The Airline Group's revenues increased $437 million or 3.9
percent during the first nine months of 1995 versus the same
period last year. American's passenger revenues increased by
4.0 percent, $386 million. American's yield (the average amount
one passenger pays to fly one mile) of 12.94 cents decreased by
1.1 percent compared to the same period in 1994. Domestic yields
decreased 2.3 percent from the first nine months of 1994.
International yields increased 1.9 percent over the first nine
months of 1994, due principally to an 8.8 percent increase in
Europe partially offset by a 4.9 percent decrease in Latin
America.
American's traffic or revenue passenger miles (RPMs) increased
5.2 percent to 77.7 billion miles for the nine months ended
September 30, 1995. American's capacity or available seat miles
(ASMs) increased 1.8 percent to 116.5 billion miles in the first
nine months of 1995, primarily as a result of increases in jet
stage length and aircraft productivity. Jet stage length
increased 5.9 percent and aircraft productivity, as measured by
miles flown per aircraft per day, increased 4.6 percent
compared with the first nine months of 1994. American's
domestic traffic increased 3.1 percent on capacity decreases of
1.0 percent and international traffic grew 10.2 percent on
capacity increases of 9.4 percent. The change in international
traffic was driven by a 14.9 percent increase in traffic to
Latin America on capacity growth of 12.4 percent, and a 7.1
percent increase in traffic to Europe on a capacity increase of
7.4 percent.
Passenger revenues of the AMR Eagle carriers decreased 5.4
percent, $33 million, due principally to a reduction in traffic
of 2.1 percent to 1.8 billion RPMs. In the first quarter AMR
Eagle redeployed its fleet of ATR aircraft in response to the
FAA's temporary restrictions on the operation of ATR aircraft.
The fleet disruption adversely impacted AMR Eagle's results in
the first and second quarter of 1995. As of June 30, 1995, the
Eagle aircraft had returned to their original locations.
On April 29, 1995 a hailstorm at American's Dallas/Fort Worth
hub temporarily disabled approximately ten percent of American's
fleet and approximately nine percent of AMR Eagle's fleet,
forcing the carriers to reduce scheduled service during the
entire month of May. This adversely impacted the Airline
Group's revenue and cost performance. The combined impact of
the hailstorm and the Eagle redeployment reduced AMR's first
half net income by approximately $33 million.
Other revenues increased 14.2 percent, $65 million, primarily
due to contract maintenance work performed by American for other
airlines and increases in airport ground services provided by
American to other airlines.
The Airline Group's operating expenses increased 2.7 percent,
$279 million. American's Passenger Division cost per ASM
increased by 0.6 percent to 8.41 cents. Wages, salaries and
benefits rose 4.2 percent, $154 million, due primarily to an
increase in provisions for profit sharing and salary adjustments
for existing employees, partially offset by a 1.3 percent
reduction in the average number of equivalent employees.
Aircraft fuel expense decreased 0.9 percent, $11 million, due to
a 1.4 percent decrease in American's average price per gallon,
partially offset by an 0.5 percent increase in gallons consumed
by American. Commissions to agents decreased 3.0 percent, $30
million, due principally to a reduction in average rates paid to
agents attributable primarily to the change in commission
structure implemented in February 1995, offset by an increase
in passenger revenues. Other operating expenses, consisting of
aircraft rentals, other rentals and landing fees, food service
costs, maintenance costs and other miscellaneous operating
expenses increased 4.1 percent, $156 million, primarily due to
increased traffic and increases in contract maintenance
expenses.
Other Income (Expense) increased 5.4 percent or $24 million.
Interest expense (net of amounts capitalized) increased $80
million due primarily to the issuance of $1.02 billion of
convertible debentures in exchange for 2.04 million preferred
shares in 1994, and the effect of rising interest rates on
floating rate debt and interest rate swap agreements. These
increases were partially offset by decreases in interest expense
attributable to scheduled debt repayments and the repurchase and
retirement of debt prior to scheduled maturity. Interest income
increased $25 million attributable to higher average investment
balances and higher average rates.
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Results of Operations (continued)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(Dollars in millions)
Nine Months Ended
September 30,
1995 1994
Revenues $1,232 $1,107
Expenses
Wages, salaries and benefits 328 297
Depreciation and amortization 130 130
Other operating expenses 446 381
Total operating expenses 904 808
Operating Income 328 299
Other Income (Expense) (10) (23)
Income Before Income Taxes $ 318 $ 276
Revenues
Revenues for The SABRE Group increased 11.3 percent, $125
million, primarily due to increased booking fee volume, which was
positively impacted by international expansion in Europe, Latin
America and India, booking fee price increases and AMR's services
agreement with Canadian Airlines International, Inc. (CAI).
Expenses
Wages, salaries and benefits increased 10.4 percent, $31 million,
due primarily to an increase in the average number of equivalent
employees. Other operating expenses increased 17.0 percent, $65
million, due primarily to costs associated with international
expansion and the CAI agreement.
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(Dollars in millions)
Nine Months Ended
September 30,
1995 1994
Revenues $ 398 $ 383
Expenses
Wages, salaries and benefits 183 169
Other operating expenses 163 181
Total operating expenses 346 350
Operating Income 52 33
Other Income (Expense) (1) 1
Income Before Income Taxes $ 51 $ 34
14
17
Results of Operations (continued)
Revenues
Revenues for the AMR Management Services Group increased 3.9
percent, or $15 million. Revenues for Airline Management
Services, which was formed in 1994 to manage the Company's
service contracts with other airlines including CAI, contributed
$22 million to the increase. This increase was partially offset
by reduced sales of aviation services.
Expenses
Wages, salaries and benefits increased 8.3 percent, $14 million,
due primarily to an increase in the average number of equivalent
employees. Other operating expenses decreased 9.9 percent, $18
million, due primarily to lower cost of goods sold attributed to
reduced sales of aviation services.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the nine month
period ended September 30, 1995, was $1.9 billion, compared to
$1.7 billion in 1994. Capital expenditures for the first nine
months of 1995 were $813 million, and included the acquisition
of six Boeing 757-200 and four Boeing 767-300 aircraft by
American and the acquisition of eight Super ATR turboprop
aircraft by AMR Leasing. In addition to the purchase of new
aircraft by American, seven Boeing 727 aircraft, formerly
recorded as capital lease assets, were purchased upon the
expiration of their lease terms. These capital expenditures, as
well as the expansion of certain airport facilities, were funded
with internally generated cash.
Other
In the third quarter, the Transport Workers Union (TWU) informed
American that its members had ratified seven of its eight labor
contracts. The TWU and American also reached tentative agreement
on the eighth contract, which covers fleet service workers. This
tentative agreement has been submitted to the fleet service
membership for a vote, with results expected in late October
1995. In addition to the TWU labor contracts, a binding
arbitration settlement regarding the labor contract between
American and the Association of Professional Flight Attendants
was announced on October 10, 1995. These contracts
include one-time early retirement programs, which will require
AMR to record a significant charge in the fourth quarter. In
addition, consistent with its Transition Plan, AMR continues to
rationalize its route network, which may result in additional
charges for the 1995 fourth quarter. At the present time the
amount of these charges cannot be reasonably estimated. However,
while it is expected that these charges will have a significant
impact on fourth quarter results of operations, they are not
expected to have a significant impact on the financial position
or liquidity of AMR.
15
18
PART II
Item 1. Legal Proceedings
American has been sued in two class 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 al 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, and on January 18, 1995, the U.S. Supreme Court
issued its opinion ending a portion of the suit against American.
The U.S. Supreme Court held that a) plaintiffs' claim for
violation of the Illinois Consumer Fraud Act was preempted by
federal law -- entirely ending that part of the case and
eliminating plaintiffs' claim for punitive damages; and b)
certain breach of contract claims would not be preempted by
federal law. The Court did not determine, however, whether the
contract claims asserted by the plaintiffs in Wolens were
preempted, and therefore remanded the case to the state court for
further proceedings. In the event that the plaintiffs' breach of
contract claim is eventually permitted to proceed in the state
court, American intends to vigorously defend the case.
On February 10, 1995, American capped travel agency commissions
for one-way and round trip domestic tickets at $25 and $50,
respectively Immediately thereafter, numerous travel agencies,
and two travel agency trade association groups filed class action
lawsuits against American and other major air carriers
(Continental, Delta, Northwest, United, USAir and TWA) that had
independently imposed similar limits on travel agency
commissions. The suits were transferred to the United States
District Court for the District of Minnesota, and consolidated as
a multi-district litigation captioned In Re: Airline Travel
Agency Commission Antitrust Litigation. The plaintiffs assert
that the airline defendants conspired to reduce travel agency
commissions and to monopolize air travel in violation of sections
1 and 2 of the Sherman Act. The case has been certified as a
class action on behalf of approximately 40,000 domestic travel
agencies and two travel agency trade associations. In June 1995
after extensive, expedited discovery, the travel agents moved for
a preliminary injunction to enjoin the commission caps, and the
defendants simultaneously moved for summary judgment. On August
31, 1995, Judge Rosenbaum denied both motions. Pre-trial
activities against the defendants, including American, are
continuing. American is vigorously defending the lawsuit.
16
19
PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
11 Statement re: computation of earnings per share
12 Statement re: computation of ratio of earnings to fixed
charges
On September 28, 1995, AMR filed a report on Form 8-K relative
to the status of the Company's labor negotiations with the
Transport Workers Union.
On October 12, 1995 AMR filed a report on Form 8-K relative to
the status of the Company's labor negotiations with the
Transport Workers Union, as well as the Company's labor
negotiations with the Association of Professional Flight
Attendants.
17
20
Signatures
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 18, 1995 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President and Chief
Financial Officer
18
21 EXHIBIT 11
AMR CORPORATION
Computation of Earnings Per Share
(In millions, except per share amounts)
Three Months Nine Months Ended
Ended September 30,
September 30,
1995 1994 1995 1994
Primary:
Average shares outstanding 76 76 76 76
Add shares issued upon
assumed conversion of
dilutive options, stock
appreciation rights
and warrants and
shares assumed issued for
deferred stock granted 4 3 3 2
Less assumed treasury
shares purchased (3) (3) (2) (2)
Totals 77 76 77 76
Earnings $ 231 $ 205 $ 448 $ 351
Less: Preferred dividend
requirements (2) (17) (4) (50)
Earnings applicable to
common shares $ 229 $ 188 $ 444 $ 301
Per share amount $ 2.96 $ 2.47 $ 5.77 $ 3.95
Fully diluted:
Average shares outstanding 76 76 76 76
Add shares issued upon:
Assumed conversion of 6.125%
convertible subordinated
debentures 13 - 13 -
Assumed conversion of
preferred stock 1 14 1 14
Assumed conversion of
dilutive options, stock
appreciation rights and
warrants and shares assumed
issued for deferred
stock granted 4 3 4 2
Less assumed treasury
shares purchased (3) (3) (3) (2)
Totals 91 90 91 90
Earnings $ 231 $ 205 $ 448 $ 351
Less: Preferred dividend
requirements (2) (17) (4) (50)
Earnings applicable to
common shares 229 188 444 301
Adjustments:
Add interest upon
assumed conversion of 6.125%
convertible subordinated
debentures, net of tax 10 - 31 -
Add dividends upon assumed
conversion of convertible
stock 2 17 4 50
Earnings as adjusted $ 241 $ 205 $ 479 $ 351
Per share amount $ 2.64 $ 2.27 $ 5.26 $ 3.89
19
22
EXHIBIT 12
AMR CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(Dollars in millions)
Nine Months
Ended September
30,
1995 1994
Earnings:
Earnings before income
taxes and extraordinary
loss $ 779 $586
Add: Total fixed 1,014 949
charges (per below)
Less: Interest capitalized 11 17
Total earnings $1,782 $ 1,518
Fixed charges:
Interest $524 $463
Portion of rental
expense representative of
the interest factor 486 481
Amortization of debt
expense 4 5
Total fixed charges $1,014 $949
Ratio of earnings to
fixed charges 1.76 1.60
20
5
1,000,000
9-MOS
DEC-31-1995
SEP-30-1995
108
1082
1577
17
614
3863
20638
6781
20068
5483
0
2311
0
78
1409
20068
0
12722
0
11467
0
0
524
779
314
465
0
(17)
0
448
5.77
5.26
