1
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, 1996.
[ ]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 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 .
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 - 90,972,266 as of October 17, 1996
2
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations -- Three months ended
September 30, 1996 and 1995; Nine months ended September 30, 1996
and 1995
Condensed Consolidated Balance Sheet -- September 30, 1996 and
December 31, 1995
Condensed Consolidated Statement of Cash Flows -- Nine months ended
September 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements -- September
30, 1996
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
3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues
Airline Group:
Passenger - American
Airlines, $3,533 $3,465 $10,330 $ 9,902
Inc.
- AMR Eagle, 265 265 798 724
Inc.
Cargo 165 167 501 503
Other 208 188 615 523
4,171 4,085 12,244 11,652
The SABRE Group 408 393 1,246 1,161
Management Services Group 158 145 466 427
Less: Intergroup revenues (175) (178) (536) (518)
Total operating 4,562 4,445 13,420 12,722
revenues
Expenses
Wages, salaries and 1,464 1,465 4,448 4,334
benefits
Aircraft fuel 494 416 1,405 1,193
Commissions to agents 323 340 959 981
Depreciation and 302 314 899 947
amortization
Other rentals and landing 229 229 668 661
fees
Aircraft rentals 146 167 472 504
Food service 177 179 506 507
Maintenance materials and 178 170 516 478
repairs
Other operating expenses 661 644 1,972 1,862
Total operating 3,974 3,924 11,845 11,467
expenses
Operating Income 588 521 1,575 1,255
Other Income (Expense)
Interest income 16 15 48 42
Interest expense (117) (163) (386) (513)
Miscellaneous - net (23) 10 (28) (9)
(124) (138) (366) (480)
Earnings Before Income
Taxes and
Extraordinary Loss 464 383 1,209 775
Income tax provision 182 150 477 314
Earnings Before
Extraordinary Loss 282 233 732 461
Extraordinary Loss, Net of
Tax Benefit - (4) - (17)
Net Earnings $ 282 $ 229 $ 732 $ 444
Continued on next page.
1
4
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
(Unaudited) (In millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Earnings (Loss) Per Common
Share
Primary:
Before extraordinary
loss $ 3.06 $ 3.01 $ 8.53 $ 6.00
Extraordinary loss - (0.05) - (0.23)
Net Earnings $ 3.06 $ 2.96 $ 8.53 $ 5.77
Fully Diluted:
Before extraordinary
loss $ 3.06 $ 2.68 $ 8.11 $ 5.45
Extraordinary loss - (0.04) - (0.19)
Net Earnings $ 3.06 $ 2.64 $ 8.11 $ 5.26
Number of shares used in
computations
Primary 92 77 86 77
Fully diluted 92 91 92 91
The accompanying notes are an integral part of these financial statements.
2
5
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
September December
30, 31,
1996 1995
(Unaudited) (Note 1)
Assets
Current Assets
Cash $ 39 $ 82
Short-term investments 1,309 819
Receivables, net 1,439 1,153
Inventories, net 623 589
Deferred income taxes 358 357
Other current assets 177 137
Total current assets 3,945 3,137
Equipment and Property
Flight equipment, net 9,355 9,852
Other equipment and property, net 1,899 1,964
11,254 11,816
Equipment and Property Under Capital Leases
Flight equipment, net 2,055 1,588
Other equipment and property, net 158 161
2,213 1,749
Route acquisition costs, net 981 1,003
Other assets, net 1,756 1,851
$ 20,149 $ 19,556
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 912 $ 817
Accrued liabilities 1,903 1,999
Air traffic liability 1,919 1,466
Current maturities of long-term debt 134 228
Current obligations under capital leases 130 122
Total current liabilities 4,998 4,632
Long-term debt, less current maturities 3,611 4,983
Obligations under capital leases, less 1,821 2,069
current obligations
Deferred income taxes 575 446
Other liabilities, deferred gains, deferred
credits and postretirement benefits 3,851 3,706
Stockholders' Equity
Convertible preferred stock - 78
Common stock 91 76
Additional paid-in capital 3,160 2,239
Retained earnings 2,042 1,327
5,293 3,720
$ 20,149 $ 19,556
The accompanying notes are an integral part of these financial
statements.
3
6
AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Nine Months Ended
September 30,
1996 1995
Net Cash Provided by Operating Activities $1,988 $1,918
Cash Flow from Investing Activities:
Capital expenditures (389) (813)
Net increase in short-term investments (490) (328)
Proceeds from sale of equipment and 232 67
property
Net cash used for investing activities (647) (1,074)
Cash Flow from Financing Activities:
Payments on long-term debt and capital (1,404) (755)
lease obligations
Other 20 (4)
Net cash used for financing activities (1,384) (759)
Net increase (decrease) in cash (43) 85
Cash at beginning of period 82 23
Cash at end of period $ 39 $ 108
Cash Payments (Refunds) For:
Interest $ 395 $ 503
Income taxes 285 (44)
The accompanying notes are an integral part of these financial
statements.
4
7
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. The balance sheet at December 31, 1995 has been derived
from the audited financial statements at that date. Certain
amounts from 1995 have been reclassified to conform with the 1996
presentation. For further information, refer to the consolidated
financial statements and footnotes thereto included in the AMR
Corporation (AMR or the Company) Annual Report on Form 10-K for the
year ended December 31, 1995.
2.Accumulated depreciation of owned equipment and property at
September 30, 1996 and December 31, 1995, was $6.2 billion and $5.8
billion, respectively. Accumulated amortization of equipment and
property under capital leases at September 30, 1996 and December
31, 1995, was $962 million and $875 million, respectively.
3.As discussed in the notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, the Miami International Airport Authority
is currently remediating various environmental conditions at Miami
International Airport (Airport) and funding the remediation costs
through landing fee revenues. Some of the costs of the remediation
effort may be borne by carriers currently operating at the Airport,
including American Airlines, Inc. (American), through increased
landing fees. The ultimate resolution of this matter is not
expected to have a significant impact on the financial position or
liquidity of AMR.
4.On May 20, 1996, the Company issued 12,915,610 shares of AMR Common
Stock upon the conversion of its 6 1/8% Convertible Subordinated
Quarterly Income Capital Securities due 2024. The debentures had
been called by the Company for redemption on April 19, 1996. The
result was an $834 million decrease in long-term debt and increase
in stockholders' equity.
5.On May 20, 1996, the Company issued 1,011,164 shares of AMR Common
Stock upon the conversion of its $500 Series A Cumulative
Convertible Preferred Stock. The preferred stock, which was
evidenced by certain Depositary Shares, had been called for
redemption on April 19, 1996. The result was a $78 million
decrease in convertible preferred stock and increase in common
stock and additional paid-in capital.
6.On June 11, 1996, the Company announced its plans to create a
worldwide alliance between American Airlines and British Airways
Plc. Subject to regulatory approval, the two carriers will
coordinate their passenger and cargo activities between the U.S.
and Europe, introduce extensive code-sharing across each other's
networks and establish full reciprocity between their frequent
flyer programs.
7.On July 2, 1996, the Company completed the reorganization of its
information technology businesses known as The SABRE Group into a
separate, wholly-owned subsidiary of AMR known as The SABRE Group
Holdings, Inc. (TSG) and its direct and indirect subsidiaries. On
October 17, 1996, TSG completed an initial public offering of
23,230,000 shares of its Class A Common Stock, representing 17.8
percent of the economic interest in TSG, for net proceeds of
approximately $593 million.
8.On September 2, 1996, American and the Allied Pilots Association
(APA) reached a tentative agreement on a new labor contract. The
agreement must be ratified by the APA Board of Directors and, if
approved, must be submitted to the APA membership for final
ratification. The Company anticipates a final decision on
ratification by mid-December 1996.
5
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the Three Months Ended September 30, 1996 and 1995
Summary AMR recorded net earnings for the three months ended
September 30, 1996, of $282 million, or $3.06 per common share
(primary and fully diluted). This compares with net earnings of $229
million, or $2.96 per common share ($2.64 fully diluted) for the
third quarter of 1995. AMR's operating income improved 12.9 percent
or $67 million.
AMR's operations fall within three major lines of business - 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.
On July 2, 1996, the Company completed the reorganization of its
information technology businesses known as The SABRE Group into a
separate, wholly-owned subsidiary of AMR known as The SABRE Group
Holdings, Inc. (TSG) and its direct and indirect subsidiaries (the
"Reorganization"). Prior to the Reorganization, most of The SABRE
Group's business units were divisions of American. As part of the
Reorganization, $850 million of American's long-term debt owed to AMR
was repaid through the transfer by American to AMR of an $850 million
debenture issued by TSG to American. This will reduce the Airline
Group's annual interest costs by approximately $60-70 million and
increase The SABRE Group's annual interest costs by an amount
dependent upon the outstanding balance of the debenture. On October
17, 1996, The SABRE Group repaid approximately $532 million of this
debenture with proceeds from its initial public offering.
In the second quarter, American and The SABRE Group completed the
negotiations of a new technology services agreement between the two
business units, pursuant to which The SABRE Group performs data
processing and solutions services for American. This new agreement
reflects the recent downward trend in market prices for data
processing services. Additionally, the two business units completed
negotiations on new agreements covering the provision of air travel
and certain marketing services by American to The SABRE Group. The
parties agreed to apply the financial terms of these agreements as of
January 1, 1996, which is reflected in the reporting segments'
financial highlights noted below.
The following sections provide a discussion of AMR's results by
reporting segment, which are described in AMR's Annual Report on Form
10-K for the year ended December 31, 1995.
6
9
Results of Operations (continued)
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
September 30,
1996 1995
Revenues
Passenger - American Airlines, Inc. $3,533 $3,465
- AMR Eagle, Inc. 265 265
Cargo 165 167
Other 208 188
4,171 4,085
Expenses
Wages, salaries and benefits 1,271 1,290
Aircraft fuel 494 416
Commissions to agents 323 340
Depreciation and amortization 258 268
Other operating expenses 1,345 1,375
Total operating expenses 3,691 3,689
Operating Income 480 396
Other Income (Expense) (109) (138)
Earnings Before Income Taxes and $ 371 $ 258
Extraordinary Loss
Average number of equivalent employees 89,300 89,700
7
10
Results of Operations (continued)
OPERATING STATISTICS
Three Months Ended
September 30,
1996 1995
American Airlines, Inc.
Jet Airline Operations
Revenue passenger miles (millions) 27,808 27,814
Available seat miles (millions) 39,134 40,376
Cargo ton miles (millions) 486 498
Passenger revenue yield per passenger
mile (cents) 12.71 12.46
Passenger revenue per available seat mile
(cents) 9.03 8.58
Cargo revenue yield per ton mile (cents) 33.50 33.09
Operating expenses per available seat
mile (cents) 8.72 8.44
Passenger load factor 71.1% 68.9%
Breakeven load factor 60.1% 59.7%
Fuel consumption (gallons, in millions) 707 712
Fuel price per gallon (cents) 67.4 56.3
Operating aircraft at period-end 640 646
AMR Eagle, Inc.
Revenue passenger miles (millions) 651 693
Available seat miles (millions) 1,111 1,230
Passenger load factor 58.6% 56.3%
Operating aircraft at period-end 208 267
Operating aircraft at September 30, 1996, included:
Jet Aircraft: Regional Aircraft:
Airbus A300-600R 35 ATR 42 46
Boeing 727-200 75 Super ATR 33
Boeing 757-200 90 Jetstream 32 3
Boeing 767-200 8 Saab 340B 90
Boeing 767-200 Extended 22 Saab 340B Plus 25
Range
Boeing 767-300 Extended 41 Shorts 360 11
Range
Fokker 100 75 Total 208
McDonnell Douglas DC-10-10 13
McDonnell Douglas DC-10-30 5
McDonnell Douglas MD-11 16
McDonnell Douglas MD-80 260
Total 640
88.3% 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 8.7 years for jet aircraft and 4 years for
regional aircraft.
8
11
Results of Operations (continued)
The Airline Group's revenues increased $86 million or 2.1 percent in
the third quarter of 1996 versus the same period last year.
American's passenger revenues increased by 2.0 percent, $68 million.
American's yield (the average amount one passenger pays to fly one
mile) of 12.71 cents increased by 2.0 percent compared to the same
period in 1995. Domestic yields increased 1.3 percent from third
quarter 1995. International yields increased 3.7 percent from third
quarter 1995, due primarily to a 6.9 percent increase in Europe.
American's traffic or revenue passenger miles (RPMs) of 27.8 billion
miles for the quarter ended September 30, 1996 were comparable to the
same period in 1995. American's capacity or available seat miles
(ASMs) decreased 3.1 percent to 39.1 billion miles in the third
quarter of 1996. Roughly half of this decline was due to
approximately ten fewer operating aircraft, partially offset by a 2.1
percent increase in jet stage length. The balance of the decline is
attributable to an increased number of flight cancellations due to a
temporary shortage of pilots available to fly the schedule. To
ensure schedule reliability, American reduced scheduled operations in
September. Operations have subsequently returned to normal.
American's domestic traffic increased 2.9 percent on capacity
decreases of 2.4 percent and international traffic decreased 5.9
percent on capacity decreases of 4.6 percent. The decline in
international traffic was driven by a 14.0 percent decrease in
traffic to Europe on a capacity decrease of 13.4 percent, partially
offset by a 3.3 percent increase in traffic to Latin America on
capacity growth of 4.3 percent.
Although not quantifiable, some portion of the passenger revenue
increase is attributable to the January 1, 1996 expiration of the ten
percent federal excise tax on airline travel. The excise tax was
reinstated on August 27, 1996 and is set to expire again on December
31, 1996.
Other revenues increased 10.6 percent, $20 million, primarily due to
increases in aircraft maintenance work and airport ground services
performed by American for other airlines.
The Airline Group's operating expenses increased 0.1 percent, $2
million. American's Jet Airline cost per ASM increased 3.3 percent
to 8.72 cents. Aircraft fuel expense increased 18.8 percent, $78
million, due to a 19.7 percent increase in American's average price
per gallon. American expects that the average price per gallon for
jet fuel will continue to increase in the fourth quarter of 1996.
Other operating expenses decreased by $30 million, approximately $21
million of which is due to a decrease in aircraft rentals resulting
from the prepayment of cancelable leases on 12 Boeing 767-300
aircraft during June and July 1996.
Other Income (Expense) decreased 21.0 percent or $29 million.
Interest expense decreased $47 million primarily due to the
conversion of $1.02 billion in convertible subordinated debentures,
the retirement of debt prior to scheduled maturity, and scheduled
debt repayments. Other expense in the third quarter of 1996 includes
a $21 million provision for a cash payment representing American's
share of a multi-carrier travel agency class action litigation
settlement.
9
12
Results of Operations (continued)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
September 30,
1996 1995
Revenues $ 408 $ 393
Operating Expenses 319 285
Operating Income 89 108
Other Income (Expense) (15) 1
Earnings Before Income Taxes $ 74 $ 109
Average number of equivalent employees 7,800 7,400
Revenues
Revenues for The SABRE Group increased 3.8 percent, $15 million,
primarily due to an increase in booking volumes worldwide, an overall
increase in the price per booking charged to associates and a
migration of associates to higher participation levels within SABRE,
offset by a reduction in revenues due to the application of the
financial terms of the technology services agreement. When results
are revised to reflect pro forma adjustments for the new agreement and
the impact of certain other transactions resulting from the
Reorganization, revenues increased 8.4 percent or $32 million.
Operating Expenses
Operating expenses increased 11.9 percent, $34 million, due primarily
to increases in customer incentive expenses and salaries and benefits.
Customer incentive expenses increased in order to maintain and grow
The SABRE Group's customer base. Salaries and benefits increased due
to an increase of approximately five percent in the average number of
equivalent employees necessary to support The SABRE Group's revenue
growth and new product development. Additionally, the new agreements
with American covering air travel and certain marketing services and
other changes resulting from the Reorganization increased operating
expenses in 1996. When results are revised to reflect pro forma
adjustments for the new agreements and the Reorganization, operating
expenses increased 9.1 percent or $27 million.
Operating Income
Operating income decreased 17.6 percent, $19 million. When results
are revised to reflect pro forma adjustments for the new agreements
and the Reorganization, operating income increased 5.9 percent, $5
million.
Other Income (Expense)
Other income (expense) increased $16 million due to interest expense
incurred on the $850 million subordinated debenture payable to AMR
issued in conjunction with the Reorganization.
10
13
Results of Operations (continued)
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
September 30,
1996 1995
Revenues $ 158 $ 145
Operating Expenses 139 128
Operating Income 19 17
Other Income (Expense) - (1)
Earnings Before Income Taxes $ 19 $ 16
Average number of equivalent employees 14,700 13,800
Revenues
Revenues for the Management Services Group increased 9.0 percent, or
$13 million. This increase is due principally to AMR Services
Corporation, which experienced higher revenue as a result of
increased airline passenger, ramp and cargo handling services
provided by its Airline Services division and increased telemarketing
services provided by its TeleService Resources division.
Operating Expenses
Operating expenses increased 8.6 percent, $11 million, due primarily
to an $8 million increase in wages, salaries and benefits resulting
from an increase in the average number of equivalent employees.
11
14
Results of Operations (continued)
For the Nine Months Ended September 30, 1996 and 1995
Summary AMR recorded net earnings for the nine months ended September
30, 1996, of $732 million, or $8.53 per common share ($8.11 fully
diluted). This compares with net earnings of $444 million, or $5.77
per common share ($5.26 fully diluted) for the same period in 1995.
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 debt prior
to scheduled maturity. AMR's operating income improved 25.5 percent
or $320 million.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Nine Months Ended
September 30,
1996 1995
Revenues
Passenger - American Airlines, Inc. $10,330 $9,902
- AMR Eagle, Inc. 798 724
Cargo 501 503
Other 615 523
12,244 11,652
Expenses
Wages, salaries and benefits 3,878 3,823
Aircraft fuel 1,405 1,193
Commissions to agents 959 981
Depreciation and amortization 757 804
Other operating expenses 4,019 3,976
Total operating expenses 11,018 10,777
Operating Income 1,226 875
Other Income (Expense) (348) (469)
Earnings Before Income Taxes and $ 878 $ 406
Extraordinary Loss
Average number of equivalent employees 89,000 89,500
12
15
Results of Operations (continued)
OPERATING STATISTICS
Nine Months Ended
September 30,
1996 1995
American Airlines, Inc.
Jet Airline Operations
Revenue passenger miles (millions) 79,119 77,660
Available seat miles (millions) 115,128 116,516
Cargo ton miles (millions) 1,504 1,519
Passenger revenue yield per passenger
mile (cents) 13.06 12.75
Passenger revenue per available seat mile
(cents) 8.97 8.50
Cargo revenue yield per ton mile (cents) 32.83 32.71
Operating expenses per available seat
mile (cents) 8.84 8.55
Passenger load factor 68.7% 66.7%
Breakeven load factor 59.5% 59.5%
Fuel consumption (gallons, in millions) 2,057 2,065
Fuel price per gallon (cents) 65.8 55.7
Operating aircraft at period-end 640 646
AMR Eagle, Inc.
Revenue passenger miles (millions) 1,962 1,834
Available seat miles (millions) 3,350 3,316
Passenger load factor 58.6% 55.3%
Operating aircraft at period-end 208 267
13
16
Results of Operations (continued)
The Airline Group's revenues increased $592 million or 5.1 percent
during the first nine months of 1996 versus the same period last
year. American's passenger revenues increased by 4.3 percent, $428
million. American's yield (the average amount one passenger pays to
fly one mile) of 13.06 cents increased by 2.4 percent compared to the
same period in 1995. Domestic yields increased 2.9 percent from the
first nine months of 1995. International yields increased 1.4
percent over the first nine months of 1995, due primarily to a 4.1
percent increase in Europe.
American's traffic or revenue passenger miles (RPMs) increased 1.9
percent to 79.1 billion miles for the nine months ended September 30,
1996. American's capacity or available seat miles (ASMs) decreased
1.2 percent to 115.1 billion miles in the first nine months of 1996,
primarily as a result of approximately 12 fewer operating aircraft,
partially offset by increases in jet stage length and aircraft
productivity. Jet stage length increased 5.0 percent and aircraft
productivity, as measured by miles flown per aircraft per day,
increased 2.3 percent compared with the first nine months of 1995.
American's domestic traffic increased 2.4 percent on capacity
decreases of 1.5 percent and international traffic grew 0.7 percent
on capacity decreases of 0.4 percent. The increase in international
traffic was driven by a 5.0 percent increase in traffic to Latin
America on capacity growth of 4.9 percent, partially offset by a 3.5
percent decrease in traffic to Europe on a capacity decrease of 5.8
percent.
Although not quantifiable, some portion of the passenger revenue
increase is attributable to the January 1, 1996 expiration of the ten
percent federal excise tax on airline travel. The excise tax was
reinstated on August 27, 1996 and is set to expire again on December
31, 1996.
Passenger revenues of the AMR Eagle carriers increased 10.2 percent,
$74 million, due principally to an increase in traffic of 7.0 percent
to 2.0 billion RPMs. In the first quarter of 1995, 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 quarters of 1995.
Other revenues increased 17.6 percent, $92 million, primarily due to
increases in aircraft maintenance work and airport ground services
performed by American for other airlines and increased employee
travel service charges.
The Airline Group's operating expenses increased 2.2 percent, $241
million. American's Jet Airline cost per ASM increased by 3.4
percent to 8.84 cents. Aircraft fuel expense increased 17.8 percent,
$212 million, due to an 18.1 percent increase in American's average
price per gallon. American expects that the average price per gallon
for jet fuel will continue to increase in the fourth quarter of 1996.
Other Income (Expense) decreased 25.8 percent or $121 million.
Interest expense decreased $125 million due primarily to scheduled
debt repayments, the retirement of debt prior to scheduled maturity,
and the conversion of $1.02 billion in convertible subordinated
debentures during the second quarter of 1996. Other expense in the
third quarter of 1996 includes a $21 million provision for a cash
payment representing American's share of a multi-carrier travel
agency class action litigation settlement.
14
17
Results of Operations (continued)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Nine Months Ended
September 30,
1996 1995
Revenues $1,246 $1,161
Operating Expenses 960 834
Operating Income 286 327
Other Income (Expense) (17) (9)
Earnings Before Income Taxes $ 269 $ 318
Average number of equivalent employees 7,900 7,300
Revenues
Revenues for The SABRE Group increased 7.3 percent, $85 million,
primarily due to an increase in booking volumes worldwide, an overall
increase in the price per booking charged to associates and a
migration of associates to higher participation levels within SABRE,
offset by a reduction in revenues due to the application of the
financial terms of the technology services agreement. When results
are revised to reflect pro forma adjustments for the new agreement and
the impact of certain other transactions resulting from the
Reorganization, revenues increased 11.4 percent or $127 million.
Operating Expenses
Operating expenses increased 15.1 percent, $126 million, due primarily
to increases in salaries and benefits and customer incentive expenses.
Salaries and benefits increased due to an increase of approximately
eight percent in the average number of equivalent employees necessary
to support the SABRE Group's revenue growth and new product
development. Customer incentive expenses increased in order to
maintain and grow The SABRE Group's customer base. Additionally, the
new agreements with American covering air travel and certain marketing
services and other changes resulting from the Reorganization increased
operating expenses in 1996. When results are revised to reflect pro
forma adjustments for the new agreements and the Reorganization,
operating expenses increased 11.8 percent or $101 million.
Operating Income
Operating income decreased 12.5 percent, $41 million. When results
are revised to reflect pro forma adjustments for the new agreements
and the Reorganization, operating income increased 10.3 percent, $26
million.
Other Income (Expense)
Other income (expense) increased $8 million due to interest expense
incurred on the $850 million subordinated debenture payable to AMR
issued in conjunction with the Reorganization, partially offset by a
reduction in the losses from joint ventures in which The SABRE Group
owns an interest accounted for under the equity method.
15
18
Results of Operations (continued)
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Nine Months Ended
September 30,
1996 1995
Revenues $ 466 $ 427
Operating Expenses 403 374
Operating Income 63 53
Other Income (Expense) (1) (2)
Earnings Before Income Taxes $ 62 $ 51
Average number of equivalent employees 14,300 13,000
Revenues
Revenues for the Management Services Group increased 9.1 percent, or
$39 million. This increase is due principally to AMR Services
Corporation, which experienced higher revenue as a result of
increased airline passenger, ramp and cargo handling services
provided by its Airline Services division and increased telemarketing
services provided by its TeleService Resources division.
Operating Expenses
Operating expenses increased 7.8 percent, $29 million, due primarily
to a $20 million increase in wages, salaries and benefits resulting
from an increase in the average number of equivalent employees.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the nine month period
ended September 30, 1996, was $2.0 billion, an increase of $70
million over the same period in 1995. Capital expenditures for the
first nine months of 1996 were $389 million, and included the
acquisition of four Boeing 757-200 aircraft. These capital
expenditures were financed with internally generated cash. Proceeds
from the sale of equipment and property of $232 million for the first
nine months of 1996 include proceeds received upon the delivery of
three of American's McDonnell Douglas MD-11 aircraft to Federal
Express Corporation in accordance with the 1995 agreement between the
two parties.
During June and July 1996, American prepaid cancelable leases it had
on 12 of its Boeing 767-300 aircraft totaling $565 million.
As a result of its initial public offering, TSG received net proceeds
of approximately $593 million. TSG used approximately $532 million
of these proceeds to repay a portion of its $850 million debenture
payable to AMR. AMR anticipates that it will use the proceeds from
such repayment for its general corporate purposes. The remaining net
proceeds of the initial public offering will be used by The SABRE
Group for its general corporate purposes.
16
19
Results of Operations (continued)
OTHER
On October 17, 1996, TSG completed an initial public offering of
23,230,000 shares of its Class A Common Stock, representing 17.8
percent of the economic interest in TSG, for net proceeds of
approximately $593 million. AMR anticipates recording a significant
gain in the fourth quarter of 1996 related to the initial public
offering.
In accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," AMR periodically reviews its investments to determine
their recoverability. The Company is currently reviewing its
$192 million investment in the cumulative mandatorily redeemable
convertible preferred stock of Canadian Airlines International
Limited. At September 30, 1996, this investment has an estimated
fair value of $32 million; the unrealized loss of $160 million has
been recorded as a reduction in equity, net of tax benefit. If the
Company determines that the decline in fair value is other than
temporary, the Company will be required to take a charge to 1996
earnings to reflect the decline in the value of this investment.
On September 2, 1996, American and the Allied Pilots Association
(APA) reached a tentative agreement on a new labor contract. One of
the provisions of the tentative agreement is that the pilots will
initially receive options to buy 3 million shares of AMR stock at $10
less than its market value per share at the grant date. The grant of
these options would occur shortly after the ratification of the
agreement. To mitigate some or all of the dilutive effect of the
exercise of these stock options, AMR is contemplating a share
repurchase plan.
17
20
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In January, 1985, American announced a new fare category, the
"Ultimate SuperSaver," a discount, advance purchase fare that carried
a 25 percent penalty upon cancellation. On December 30, 1985, a class
action lawsuit was filed in Circuit Court, Cook County, Illinois
entitled Johnson vs. American Airlines, Inc. The Johnson plaintiffs
allege that the 10 percent federal excise transportation tax should be
excluded from the "fare" upon which the 25 percent penalty is
assessed. The case has not been certified as a class action. Summary
judgment was granted in favor of American but subsequently reversed
and vacated by the Illinois Appellate court. American believes the
matter is without merit and is vigorously defending the lawsuit.
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. Currently, the plaintiffs
allege that, on that date, American implemented changes that limited
the number of seats available to participants traveling on certain
awards and established blackout dates during which no AAdvantage seats
would be available for certain awards and that these changes breached
American's contracts with AAdvantage members. Plaintiffs seek money
damages for such alleged breach and attorneys' fees. Previously the
plaintiffs also alleged violation of the Illinois Consumer Fraud and
Deceptive Business Practice Act (Consumer Fraud Act) and sought
punitive damages, attorneys' fees and injunctive relief preventing
American from making changes to the AAdvantage program. American
originally moved to dismiss all of the claims, asserting that they
were preempted by the Federal Aviation Act and barred by the Commerce
Clause of the U.S. Constitution.
Initially, 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, the 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 are preempted, but that
identical claims for compensatory and punitive damages are not
preempted. On February 8, 1994, American filed a 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 is 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 are not preempted by federal law.
The U.S. Supreme Court did not determine, however, whether the
contract claims asserted by the plaintiffs are preempted, and
therefore, remanded the case to the state court for further
proceedings. Subsequently, plaintiffs filed an amended complaint
seeking damages solely for a breach of contract claim. 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.
18
21
Legal Proceedings (continued)
In December, 1993, American announced that the number of miles
required to claim a certain travel award under American's AAdvantage
frequent flyer program would be increased effective February 1, 1995.
On February 1, 1995 a class action lawsuit entitled Gutterman vs.
American Airlines, Inc. was filed in the Circuit Court of Cook County,
Illinois. The Gutterman plaintiffs claim that this increase in
mileage level violated the terms and conditions of the agreement
between American and AAdvantage members. On February 9, 1995, a
virtually identical class action lawsuit entitled Benway vs. American
Airlines, Inc. was filed in District Court, Dallas County, Texas.
After limited discovery and prior to class certification, a summary
judgment dismissing the Benway case was entered by the Dallas County
Court in July 1995. On March 11, 1996, American's motion to dismiss
the Gutterman lawsuit was denied. American filed a motion for
reconsideration which was also denied on July 11, 1996. American's
motion for summary judgment is still pending. No class has been
certified in the Gutterman lawsuit and to date no discovery has been
undertaken. American believes the Gutterman complaint is without
merit and is vigorously defending the lawsuit.
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. On
September 3, 1996, American reached a tentative settlement with
plaintiffs whereby American agreed, inter alia, to pay $21.3 million
in exchange for a release from all claims. A hearing has been
scheduled for November 15, 1996, at which time the court will consider
approval of the settlement.
19
22
PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
11 Computation of earnings per share.
27 Financial Data Schedule.
20
23
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 25, 1996 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President and Chief
Financial Officer
21
24
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,
1996 1995 1996 1995
Primary:
Earnings applicable to
common shares $ 282 $ 229 $ 732 $ 444
Average shares outstanding 91 76 85 76
Add shares issued upon
assumed conversion of
dilutive options, stock
appreciation rights and
warrants and shares
assumed issued for deferred
stock granted 3 4 3 3
Less assumed treasury
shares purchased (2) (3) (2) (2)
Total primary shares 92 77 86 77
Primary earnings per share $ 3.06 $ 2.96 $ 8.53 $ 5.77
Fully diluted:
Earnings applicable to
common shares 282 229 732 444
Adjustments:
Add interest upon assumed
conversion of 6.125%
convertible subordinated
debentures, net of tax - 10 14 (a) 31
Add dividends upon assumed
conversion of convertible
preferred stock - 2 1 (a) 4
Earnings as adjusted $ 282 $ 241 $ 747 $ 479
Average shares outstanding 91 76 85 76
Add shares issued upon:
Assumed conversion of
6.125% convertible
subordinated debentures - 13 5 13
Assumed conversion of
preferred stock - 1 1 1
Assumed conversion of
dilutive options,stock
appreciation rights and
warrants and shares assumed
issued for deferred stock
granted 3 4 3 4
Less assumed treasury
shares purchased (2) (3) (2) (3)
Total fully diluted shares 92 91 92 91
Fully diluted earnings per
share $ 3.06 $ 2.64 $ 8.11 $ 5.26
(a) Through date of actual conversion.
22
5
1,000,000
9-MOS
DEC-31-1996
SEP-30-1996
39
1309
1451
12
623
3945
20622
7155
20149
4998
0
0
0
91
5202
20149
0
13420
0
11845
0
0
386
1209
477
732
0
0
0
732
8.53
8.11
