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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 JUNE 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
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(Exact name of registrant as specified in its charter)
Delaware 75-1825172
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
Not Applicable
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(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 .
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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 - 90,935,108 as of August 5, 1996
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INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations -- Three months ended June 30,
1996 and 1995; Six months ended June 30, 1996 and 1995
Condensed Consolidated Balance Sheet -- June 30, 1996 and December 31, 1995
Condensed Consolidated Statement of Cash Flows -- Six months ended June 30,
1996 and 1995
Notes to Condensed Consolidated Financial Statements -- June 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 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
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Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1996 1995 1996 1995
------ ------- ------ ------
REVENUES
Airline Group:
Passenger - American Airlines, Inc. $3,510 $3,347 $6,797 $6,437
- AMR Eagle, Inc. 266 251 533 459
Cargo 173 178 336 336
Other 210 180 407 335
------ ------ ------ ------
4,159 3,956 8,073 7,567
The SABRE Group 410 383 838 768
Management Services Group 151 139 308 282
Less: Intergroup revenues (170) (171) (361) (340)
------ ------ ------ ------
Total operating revenues 4,550 4,307 8,858 8,277
EXPENSES
Wages, salaries and benefits 1,497 1,464 2,984 2,869
Aircraft fuel 470 399 911 777
Commissions to agents 321 321 636 641
Depreciation and amortization 297 318 597 633
Other rentals and landing fees 223 218 439 432
Aircraft rentals 162 167 326 337
Food service 173 168 329 328
Maintenance materials and repairs 170 156 338 308
Other operating expenses 651 614 1,311 1,218
------ ------ ------ ------
Total operating expenses 3,964 3,825 7,871 7,543
------ ------ ------ ------
OPERATING INCOME 586 482 987 734
OTHER INCOME (EXPENSE)
Interest income 16 14 32 27
Interest expense (123) (173) (269) (350)
Miscellaneous - net 1 (3) (5) (19)
------ ------ ------ ------
(106) (162) (242) (342)
------ ------ ------ ------
EARNINGS BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS 480 320 745 392
Income tax provision 187 129 295 164
------ ------ ------ ------
EARNINGS BEFORE EXTRAORDINARY LOSS 293 191 450 228
EXTRAORDINARY LOSS, NET OF TAX BENEFIT - (13) - (13)
------ ------ ------ ------
NET EARNINGS $ 293 $ 178 $ 450 $ 215
====== ====== ====== ======
Continued on next page.
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AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
(Unaudited) (In millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1996 1995 1996 1995
------ ------- ------ -------
EARNINGS (LOSS) PER COMMON SHARE
Primary:
Before effect of extraordinary loss $3.35 $ 2.48 $5.44 $ 2.96
Extraordinary loss - (0.17) - (0.17)
----- ------- ----- -------
Net Earnings $3.35 $ 2.31 $5.44 $ 2.79
===== ======= ===== =======
Fully Diluted:
Before effect of extraordinary loss $3.20 $ 2.23 $5.04 $ 2.77
Extraordinary loss - (0.15) - (0.15)
----- ------- ----- -------
Net Earnings $3.20 $ 2.08 $5.04 $ 2.62
===== ======= ===== =======
NUMBER OF SHARES USED IN COMPUTATIONS
Primary 87 77 83 77
===== ======= ===== =======
Fully diluted 92 91 92 91
===== ======= ===== =======
The accompanying notes are an integral part of these financial statements.
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AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
June 30, December 31,
1996 1995
----------- ------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS
Cash $ 80 $ 82
Short-term investments 808 819
Receivables, net 1,496 1,153
Inventories, net 605 589
Deferred income taxes 358 357
Other current assets 189 137
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Total current assets 3,536 3,137
EQUIPMENT AND PROPERTY
Flight equipment, net 9,495 9,852
Other equipment and property, net 1,913 1,964
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11,408 11,816
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment, net 1,814 1,588
Other equipment and property, net 157 161
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1,971 1,749
Route acquisition costs, net 988 1,003
Other assets, net 1,759 1,851
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$19,662 $19,556
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 856 $ 817
Accrued liabilities 1,775 1,999
Air traffic liability 1,887 1,466
Current maturities of long-term debt 135 228
Current obligations under capital leases 138 122
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Total current liabilities 4,791 4,632
Long-term debt, less current maturities 3,621 4,983
Obligations under capital leases, less current obligations 1,848 2,069
Deferred income taxes 542 446
Other liabilities, deferred gains, deferred
credits and postretirement benefits 3,838 3,706
STOCKHOLDERS' EQUITY
Convertible preferred stock - 78
Common stock 91 76
Additional paid-in capital 3,159 2,239
Retained earnings 1,772 1,327
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5,022 3,720
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$19,662 $19,556
======= =======
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)
Six Months Ended June 30,
-------------------------
1996 1995
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,128 $1,107
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (233) (683)
Net decrease (increase) in short-term investments 11 (56)
Proceeds from sale of equipment and property 156 65
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Net cash used for investing activities (66) (674)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (1,082) (365)
Other 18 (2)
------- ------
Net cash used for financing activities (1,064) (367)
------- ------
Net increase (decrease) in cash (2) 66
Cash at beginning of period 82 23
------- ------
Cash at end of period $ 80 $ 89
======= ======
CASH PAYMENTS (REFUNDS) FOR:
Interest $ 280 $ 336
Income taxes 282 (56)
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. 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 June 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 June 30, 1996 and December 31, 1995, was $921
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.
Under the alliance and beginning in April 1997, 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. As of 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. and its direct and indirect subsidiaries. On August 8,
1996, the Company announced that The SABRE Group Holdings, Inc., filed
a registration statement with the Securities and Exchange Commission
to make an initial public offering of its Class A Common Stock. The
offering will be for less than 20 percent of the stock of The SABRE
Group Holdings, Inc.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
SUMMARY AMR recorded net earnings for the three months ended June 30,
1996, of $293 million, or $3.35 per common share ($3.20 fully diluted). This
compares with net earnings of $178 million, or $2.31 per common share ($2.08
fully diluted) for the second quarter of 1995. Included in net earnings for
the three months ended June 30, 1995, is an extraordinary loss of $21 million
($13 million net of tax) resulting from the repurchase and retirement of $239
million of debt prior to scheduled maturity. AMR's operating income improved
21.6 percent or $104 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.
As of 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. 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 The SABRE Group Holdings, Inc. to American. This will reduce the
Airline Group's annual interest costs and increase The SABRE Group's annual
interest costs by approximately $60-70 million.
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.
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RESULTS OF OPERATIONS (CONTINUED)
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended June 30,
---------------------------
1996 1995
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REVENUES
Passenger - American Airlines, Inc. $ 3,510 $ 3,347
- AMR Eagle, Inc. 266 251
Cargo 173 178
Other 210 180
------- -------
4,159 3,956
EXPENSES
Wages, salaries and benefits 1,306 1,293
Aircraft fuel 470 399
Commission to agents 321 321
Depreciation and amortization 247 270
Other operating expenses 1,331 1,310
------- -------
Total operating expenses 3,675 3,593
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OPERATING INCOME 484 363
OTHER INCOME (EXPENSE) (105) (160)
------- -------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY LOSS $ 379 $ 203
======= =======
Average number of equivalent employees 87,800 89,500
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RESULTS OF OPERATIONS (CONTINUED)
OPERATING STATISTICS
Three Months Ended June 30,
---------------------------
1996 1995
------ ------
AMERICAN AIRLINES, INC.
Jet Airline Operations
Revenue passenger miles (millions) 26,679 26,012
Available seat miles (millions) 38,440 38,742
Cargo ton miles (millions) 520 532
Passenger revenue yield per passenger mile (cents) 13.16 12.87
Passenger revenue per available seat mile (cents) 9.13 8.64
Cargo revenue yield per ton mile (cents) 32.74 33.01
Operating expenses per available seat mile (cents) 8.84 8.58
Passenger load factor 69.4% 67.1%
Breakeven load factor 58.5% 58.5%
Fuel consumption (gallons, in millions) 687 687
Fuel price per gallon (cents) 66.0 56.0
Operating aircraft at period-end 637 650
AMR EAGLE, INC.
Revenue passenger miles (millions) 675 645
Available seat miles (millions) 1,102 1,126
Passenger load factor 61.2% 57.3%
Operating aircraft at period-end 227 266
Operating aircraft at June 30, 1996, included:
JET AIRCRAFT: REGIONAL AIRCRAFT:
Airbus A300-600R 35 ATR 42 46
Boeing 727-200 71 Super ATR 33
Boeing 757-200 88 Jetstream 32 20
Boeing 767-200 8 Saab 340A 2
Boeing 767-200 Extended Range 22 Saab 340B 93
Boeing 767-300 Extended Range 41 Saab 340B Plus 22
Fokker 100 75 Shorts 360 11
McDonnell Douglas DC-10-10 16 ---
McDonnell Douglas DC-10-30 4 Total 227
McDonnell Douglas MD-11 17 ===
McDonnell Douglas MD-80 260
---
Total 637
===
88.9% of the jet aircraft fleet is Stage III, a classification of aircraft
meeting noise standards as 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 $203 million or 5.1 percent in the
second quarter of 1996 versus the same period last year. American's PASSENGER
REVENUES increased by 4.9 percent, $163 million. American's YIELD (the average
amount one passenger pays to fly one mile) of 13.16 cents increased by 2.3
percent compared to the same period in 1995. Domestic yields increased 3.5
percent from second quarter 1995. International yields decreased 0.7 percent
from second quarter 1995, due principally to a 2.3 percent decrease in Latin
America and a 16.1 percent decrease in the Pacific, partially offset by a 2.9
percent increase in Europe. The decline in yield in the Pacific was primarily
due to the foreign exchange impact of the weaker yen.
American's traffic or REVENUE PASSENGER MILES (RPMs) increased 2.6 percent to
26.7 billion miles for the quarter ended June 30, 1996. American's capacity or
AVAILABLE SEAT MILES (ASMs) decreased 0.8 percent to 38.4 billion miles in the
second quarter of 1996, primarily as a result of 15 fewer operating aircraft,
partially offset by increases in jet stage length and aircraft productivity.
Jet stage length increased 4.5 percent and aircraft productivity, as measured
by miles flown per aircraft per day, increased 3.1 percent compared with second
quarter 1995. American's domestic traffic increased 3.1 percent on capacity
decreases of 0.3 percent and international traffic grew 1.3 percent on capacity
decreases of 1.8 percent. The change in international traffic was driven by a
6.2 percent increase in traffic to Latin America on capacity growth of 3.1
percent, partially offset by a 3.1 percent decrease in traffic to Europe on a
capacity decrease of 6.6 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.
AMR Eagle passenger revenues increased 6.0 percent, $15 million, due
principally to an increase in traffic of 4.7 percent to 675 million RPMs. In
the first quarter of 1995, AMR Eagle redeployed its fleet of ATR aircraft in
response to the Federal Aviation Administration'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.
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 second quarter 1995 net earnings by
approximately $23 million.
OTHER REVENUES increased 16.7 percent, $30 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 2.3 percent, $82 million.
American's Jet Airline cost per ASM increased 3.0 percent to 8.84 cents.
AIRCRAFT FUEL expense increased 17.8 percent, $71 million, due to a 17.9
percent increase in American's average price per gallon.
OTHER INCOME (EXPENSE) decreased 34.4 percent or $55 million. Interest expense
decreased $46 million primarily due to scheduled debt repayments, the
conversion of $1.02 billion in convertible subordinated debentures, and the
retirement of debt prior to scheduled maturity.
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RESULTS OF OPERATIONS (CONTINUED)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(Dollars in millions)
Three Months Ended June 30,
---------------------------
1996 1995
------ ------
REVENUES $ 410 $ 383
EXPENSES
Wages, salaries and benefits 121 108
Depreciation and amortization 45 43
Other operating expenses 163 132
------ ------
Total operating expenses 329 283
------ ------
OPERATING INCOME 81 100
OTHER INCOME (EXPENSE) (1) (1)
------ ------
EARNINGS BEFORE INCOME TAXES $ 80 $ 99
====== ======
Average number of equivalent employees 7,900 7,200
REVENUES
Revenues for The SABRE Group increased 7.0 percent, $27 million, primarily due
to higher booking fee prices and increased volumes. The new technology
services agreement and other changes resulting from the reorganization of The
SABRE Group had the effect of reducing The SABRE Group's revenues in 1996.
When 1995 results are restated to reflect the new agreement and other changes
resulting from the reorganization, revenues increased 10.5 percent or $39
million.
EXPENSES
Wages, salaries and benefits increased 12.0 percent, $13 million, due to an
increase in the average number of employees necessary to support The SABRE
Group's revenue growth and new product development. Other operating expenses
increased 23.5 percent, $31 million, due to increases in subscriber incentive
expenses necessary to maintain and grow The SABRE Group's travel agency
subscriber base. Additionally, the new agreements with American covering air
travel and certain marketing services and other changes made as a result of the
reorganization of The SABRE Group had the effect of increasing The SABRE
Group's other operating expenses in 1996. When 1995 results are restated to
reflect such new agreements and other changes, other operating expenses
increased 15.6% or $22 million.
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RESULTS OF OPERATIONS (CONTINUED)
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(Dollars in millions)
Three Months Ended June 30,
---------------------------
1996 1995
------- -------
REVENUES $ 151 $ 139
EXPENSES
Wages, salaries and benefits 70 63
Other operating expenses 60 57
------- -------
Total operating expenses 130 120
------- -------
OPERATING INCOME 21 19
OTHER INCOME (EXPENSE) - (1)
------- -------
EARNINGS BEFORE INCOME TAXES $ 21 $ 18
======= =======
Average number of equivalent employees 14,800 12,500
REVENUES
Revenues for the Management Services Group increased 8.6 percent, or $12
million. AMR Services Corporation contributed $10 million to the increase,
principally due to increased airline passenger, ramp and cargo handling
services provided by its Airline Services division and increased telemarketing
services provided by its TeleService Resources division.
EXPENSES
Wages, salaries and benefits increased 11.1 percent, $7 million, due primarily
to an increase in the average number of equivalent employees.
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RESULTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
SUMMARY AMR recorded net earnings for the six months ended June 30,
1996, of $450 million, or $5.44 per common share ($5.04 fully diluted). This
compares with net earnings of $215 million, or $2.79 per common share ($2.62
fully diluted) for the second quarter of 1995. Included in net earnings for
the six months ended June 30, 1995, is an extraordinary loss of $21 million
($13 million net of tax) resulting from the repurchase and retirement of $239
million of debt prior to scheduled maturity. AMR's operating income improved
34.5 percent or $253 million.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Six Months Ended June 30,
-------------------------
1996 1995
------- -------
REVENUES
Passenger - American Airlines, Inc. $ 6,797 $ 6,437
- AMR Eagle, Inc. 533 459
Cargo 336 336
Other 407 335
------- -------
8,073 7,567
EXPENSES
Wages, salaries and benefits 2,607 2,533
Aircraft fuel 911 777
Commission to agents 636 641
Depreciation and amortization 499 536
Other operating expenses 2,674 2,601
------- -------
Total operating expenses 7,327 7,088
------- -------
OPERATING INCOME 746 479
OTHER INCOME (EXPENSE) (239) (331)
------- -------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY LOSS $ 507 $ 148
======= =======
Average number of equivalent employees 88,900 89,400
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RESULTS OF OPERATIONS (CONTINUED)
OPERATING STATISTICS
Six Months Ended June 30,
-------------------------
1996 1995
------ ------
AMERICAN AIRLINES, INC.
Jet Airline Operations
Revenue passenger miles (millions) 51,311 49,846
Available seat miles (millions) 75,994 76,140
Cargo ton miles (millions) 1,018 1,021
Passenger revenue yield per passenger mile (cents) 13.25 12.92
Passenger revenue per available seat mile (cents) 8.94 8.45
Cargo revenue yield per ton mile (cents) 32.50 32.52
Operating expenses per available seat mile (cents) 8.91 8.62
Passenger load factor 67.5% 65.5%
Breakeven load factor 59.2% 59.4%
Fuel consumption (gallons, in millions) 1,350 1,353
Fuel price per gallon (cents) 65.0 55.4
Operating aircraft at period-end 637 650
AMR EAGLE, INC.
Revenue passenger miles (millions) 1,311 1,141
Available seat miles (millions) 2,239 2,086
Passenger load factor 58.6% 54.7%
Operating aircraft at period-end 227 266
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RESULTS OF OPERATIONS (CONTINUED)
The Airline Group's REVENUES increased $506 million or 6.7 percent during the
first six months of 1996 versus the same period last year. American's
PASSENGER REVENUES increased by 5.6 percent, $360 million. American's YIELD
(the average amount one passenger pays to fly one mile) of 13.25 cents
increased by 2.6 percent compared to the same period in 1995. Domestic yields
increased 3.7 percent from the first six months of 1995. International yields
were comparable to the first six months of 1995, reflecting a 2.3 percent
increase in Europe offset by a 10.0 percent decrease in the Pacific. The
decline in yield in the Pacific was primarily due to the foreign exchange
impact of the weaker yen.
American's traffic or REVENUE PASSENGER MILES (RPMs) increased 2.9 percent to
51.3 billion miles for the six months ended June 30, 1996. American's capacity
or AVAILABLE SEAT MILES (ASMs) decreased 0.2 percent to 76.0 billion miles in
the first six months of 1996, primarily as a result of 13 fewer operating
aircraft, partially offset by increases in jet stage length and aircraft
productivity. Jet stage length increased 6.5 percent and aircraft
productivity, as measured by miles flown per aircraft per day, increased 2.4
percent compared with the first six months of 1995. American's domestic
traffic increased 2.1 percent on capacity decreases of 1.1 percent and
international traffic grew 5.0 percent on capacity increases of 1.9 percent.
The change in international traffic was driven by a 5.9 percent increase in
traffic to Latin America on capacity growth of 5.1 percent, and a 3.8 percent
increase in traffic to Europe on a capacity decrease of 1.2 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.
Passenger revenues of the AMR Eagle carriers increased 16.1 percent, $74
million, due principally to an increase in traffic of 14.9 percent to 1.3
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.
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 second quarter 1995 net earnings by
approximately $23 million.
OTHER REVENUES increased 21.5 percent, $72 million, primarily due to increased
employee travel service charges and increases in aircraft maintenance work and
airport ground services performed by American for other airlines.
The Airline Group's OPERATING EXPENSES increased 3.4 percent, $239 million.
American's Jet Airline cost per ASM increased by 3.4 percent to 8.91 cents.
AIRCRAFT FUEL expense increased 17.2 percent, $134 million, due to a 17.3
percent increase in American's average price per gallon.
OTHER INCOME (EXPENSE) decreased 27.8 percent or $92 million. Interest expense
(net of amounts capitalized) decreased $78 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.
-14-
17
RESULTS OF OPERATIONS (CONTINUED)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(Dollars in millions)
Six Months Ended June 30,
-------------------------
1996 1995
-------- --------
REVENUES $ 838 $ 768
EXPENSES
Wages, salaries and benefits 240 211
Depreciation and amortization 88 88
Other operating expenses 313 250
------ ------
Total operating expenses 641 549
------ ------
OPERATING INCOME 197 219
OTHER INCOME (EXPENSE) (2) (10)
------ ------
EARNINGS BEFORE INCOME TAXES $ 195 $209
====== ======
Average number of equivalent employees 7,900 7,200
REVENUES
Revenues for The SABRE Group increased 9.1 percent, $70 million, primarily due
to higher booking fee prices and increased volumes. The new technology
services agreement and other changes resulting from the reorganization of The
SABRE Group had the effect of reducing The SABRE Group's revenues in 1996.
When 1995 results are restated to reflect the new agreement and other changes
resulting from the reorganization, revenues increased 12.8 percent or $95
million.
EXPENSES
Wages, salaries and benefits increased 13.7 percent, $29 million, due to an
increase in the average number of employees necessary to support The SABRE
Group's revenue growth and new product development. Other operating expenses
increased 25.2 percent, $63 million, due to increases in subscriber incentive
expenses necessary to maintain and grow The SABRE Group's travel agency
subscriber base. Additionally, the new agreements with American covering air
travel and certain marketing services and other changes made as a result of the
reorganization of The SABRE Group had the effect of increasing The SABRE
Group's other operating expenses in 1996. When 1995 results are restated to
reflect such new agreements and other changes, other operating expenses
increased 16.8% or $45 million.
-15-
18
RESULTS OF OPERATIONS (CONTINUED)
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(Dollars in millions)
Six Months Ended June 30,
-------------------------
1996 1995
-------- --------
REVENUES $ 308 $ 282
EXPENSES
Wages, salaries and benefits 137 125
Other operating expenses 127 121
-------- --------
Total operating expenses 264 246
-------- --------
OPERATING INCOME 44 36
OTHER INCOME (EXPENSE) (1) (1)
------- --------
EARNINGS BEFORE INCOME TAXES $ 43 $ 35
------- --------
Average number of equivalent employees 14,100 12,600
REVENUES
Revenues for the Management Services Group increased 9.2 percent, or $26
million. AMR Services Corporation contributed $23 million to the increase,
principally due to increased airline passenger, ramp and cargo handling
services provided by its Airline Services division and increased telemarketing
services provided by its TeleService Resources division.
EXPENSES
Wages, salaries and benefits increased 9.6 percent, $12 million, due primarily
to an increase in the average number of equivalent employees.
LIQUIDITY AND CAPITAL RESOURCES
NET CASH PROVIDED BY OPERATING ACTIVITIES in the six month period ended June
30, 1996, was $1.1 billion, an increase of $21 million over the same period in
1995. Capital expenditures for the first six months of 1996 were $233 million,
and included the acquisition of two Boeing 757-200 aircraft. These capital
expenditures were financed with internally generated cash. Proceeds from the
sale of equipment and property of $156 million for the first six months of 1996
include proceeds received upon the delivery of two 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. As of June 30, 1996, prepayments totaling $284
million had been made for six of these aircraft. Prepayments totaling $281
million for the remaining six aircraft were made in July 1996.
The SABRE Group expects to use some amount of the net proceeds from the initial
public offering of the Class A Common Stock of The SABRE Group Holdings, Inc.
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
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.
-17-
20
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. The plaintiffs assert
that the airline defendants conspired to reduce travel agency commissions and
to monopolize air travel in violation of section 1 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, the District
Court denied both motions. Pre-trial activities are continuing, and the
case is set for trial beginning September 4, 1996. American is vigorously
defending the lawsuit.
-18-
21
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The owners of 66,246,378 shares of common stock, or 86 percent of shares
outstanding, were represented at the annual meeting of stockholders on May 15,
1996 at The Westin Hotel-Galleria, 13340 Dallas Parkway, Dallas, Texas.
Elected as directors of the Corporation, each receiving a minimum of 66,073,131
votes were:
David L. Boren Earl G. Graves
Edward A. Brennan Dee J. Kelly
Armando M. Codina Ann D. McLaughlin
Robert L. Crandall Charles H. Pistor, Jr.
Christopher F. Edley Joe M. Rodgers
Charles T. Fisher, III Maurice Segall
Stockholders ratified the appointment of Ernst & Young LLP as independent
auditors for the Corporation for 1996. The vote was 66,143,211 in favor; 46,159
against; and 57,008 abstaining.
Stockholders ratified a proposal relating to amendments to the 1994 Directors
Stock Incentive Plan. The vote was 63,699,934 in favor; 939,407 against; and
1,607,037 abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
11 Statement re: computation of earnings per share.
27 Financial Data Schedule.
AMR filed a report on Form 8-K dated July 8, 1996 relative to the completion of
the reorganization of The SABRE Group.
-19-
22
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: August 8, 1996 BY: /s/ Gerard J. Arpey
----------------------------------------
Gerard J. Arpey
Senior Vice President
and Chief Financial Officer
-20-
23
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule
1
EXHIBIT 11
AMR CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(In millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------------
1996 1995 1996 1995
----- ------
PRIMARY:
Earnings applicable to common shares $ 293 $ 178 $ 450 $ 215
===== ===== ===== =====
Average shares outstanding 86 76 81 76
Add shares issued upon assumed
conversion of dilutive options, stock
appreciation rights and warrants and
shares assumed issued for deferred
stock granted 3 3 4 3
Less assumed treasury shares purchased (2) (2) (2) (2)
----- ----- ----- -----
Total primary shares 87 77 83 77
===== ===== ===== =====
Primary earnings per share $3.35 $2.31 $5.44 $2.79
===== ===== ===== =====
FULLY DILUTED:
Earnings applicable to common shares 293 178 450 215
Adjustments:
Add interest upon assumed conversion
of 6.125% convertible subordinated
debentures, net of tax 3 (a) 10 14 (a) 21
Add dividends upon assumed
conversion of convertible preferred
stock - 1 1 (a) 2
----- ----- ----- -----
Earnings, as adjusted $ 296 $ 189 $ 465 $ 238
===== ===== ===== =====
Average shares outstanding 86 76 81 76
Add shares issued upon:
Assumed conversion of 6.125%
convertible subordinated debentures 4 13 8 13
Assumed conversion of preferred stock 1 1 1 1
Assumed conversion of dilutive options,
stock appreciation rights and warrants
and shares assumed issued for
deferred stock granted 3 3 4 3
Less assumed treasury shares purchased (2) (2) (2) (2)
----- ----- ----- -----
Total fully diluted shares 92 91 92 91
===== ===== ===== =====
Fully diluted earnings per share $3.20 $2.08 $5.04 $2.62
===== ===== ===== =====
(a) Through date of actual conversion.
-21-
5
1,000,000
6-MOS
DEC-31-1996
JAN-01-1996
JUN-30-1996
80
808
1,511
15
605
3,536
20,471
7,092
19,662
4,791
0
91
0
0
4,931
19,662
0
8,858
0
7,871
0
0
269
745
295
450
0
0
0
450
5.44
5.04
