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 March 31, 1997.
[ ]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) 963-1234
including area code
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 - 91,197,689 as of May 7, 1997
2
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations -- Three months ended March
31, 1997 and 1996
Condensed Consolidated Balance Sheet -- March 31, 1997 and December
31, 1996
Condensed Consolidated Statement of Cash Flows -- Three months
ended March 31, 1997 and 1996
Notes to Condensed Consolidated Financial Statements -- March 31,
1997
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
Item 1. Financial Statements
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
Three Months Ended
March 31,
1997 1996
Revenues
Airline Group:
Passenger - American Airlines, Inc. $3,390 $3,287
- AMR Eagle, Inc. 248 267
Cargo 164 163
Other 204 197
4,006 3,914
The SABRE Group 440 428
Management Services Group 161 157
Less: Intergroup revenues (181) (191)
Total operating revenues 4,426 4,308
Expenses
Wages, salaries and benefits 1,540 1,487
Aircraft fuel 520 441
Commissions to agents 314 315
Depreciation and amortization 312 300
Other rentals and landing fees 218 216
Maintenance materials and repairs 195 168
Food service 161 156
Aircraft rentals 144 164
Other operating expenses 673 660
Total operating expenses 4,077 3,907
Operating Income 349 401
Other Income (Expense)
Interest income 27 16
Interest expense (103) (146)
Minority interest (12) -
Miscellaneous - net (4) (6)
(92) (136)
Earnings Before Income Taxes 257 265
Income tax provision 105 108
Net Earnings $ 152 $ 157
Earnings Per Common Share
Primary $ 1.65 $ 2.02
Fully Diluted $ 1.65 $ 1.84
Number of Shares Used in Computation
Primary 92 78
Fully Diluted 92 92
The accompanying notes are an integral part of these financial statements.
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AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
March December
31, 31,
1997 1996
(Unaudited) (Note 1)
Assets
Current Assets
Cash $ 89 $ 68
Short-term investments 1,657 1,743
Receivables, net 1,493 1,382
Inventories, net 611 633
Deferred income taxes 404 404
Other current assets 257 240
Total current assets 4,511 4,470
Equipment and Property
Flight equipment, net 9,055 9,251
Other equipment and property, net 1,865 1,882
10,920 11,133
Equipment and Property Under Capital Leases
Flight equipment, net 1,978 2,016
Other equipment and property, net 156 156
2,134 2,172
Route acquisition costs, net 967 974
Other assets, net 1,791 1,748
$ 20,323 $ 20,497
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 990 $ 1,068
Accrued liabilities 1,805 2,055
Air traffic liability 2,074 1,889
Current maturities of long-term debt 296 424
Current obligations under capital leases 134 130
Total current liabilities 5,299 5,566
Long-term debt, less current maturities 2,708 2,752
Obligations under capital leases, less
current obligations 1,703 1,790
Deferred income taxes 744 743
Other liabilities, deferred gains, deferred
credits and postretirement benefits 4,045 3,978
Stockholders' Equity
Common stock 91 91
Additional paid-in capital 3,170 3,166
Retained earnings 2,563 2,411
5,824 5,668
$ 20,323 $ 20,497
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)
Three Months Ended
March 31,
1997 1996
Net Cash Provided by Operating Activities $ 232 $ 325
Cash Flow from Investing Activities:
Capital expenditures (145) (107)
Net decrease in short-term investments 86 23
Proceeds from sale of equipment and property 85 73
Net cash provided by (used for)
investing activities 26 (11)
Cash Flow from Financing Activities:
Payments on long-term debt and
capital lease obligations (240) (379)
Other 3 21
Net cash used for financing activities (237) (358)
Net increase (decrease) in cash 21 (44)
Cash at beginning of period 68 82
Cash at end of period $ 89 $ 38
Cash Payments For:
Interest $ 123 $ 138
Income taxes 104 133
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. Results of operations for the periods presented herein
are not necessarily indicative of results of operations for the
entire year. The balance sheet at December 31, 1996 has been
derived from the audited financial statements at that date. 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,
1996.
2.Accumulated depreciation of owned equipment and property at March
31, 1997 and December 31, 1996, was $6.2 billion and $6.1 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at March 31, 1997 and December 31, 1996, was
$1.0 billion and $971 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, 1996, 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. Future costs of the remediation
effort may be borne by carriers 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 5, 1997, the members of the Allied Pilots Association
ratified a new labor agreement that was reached with American in
March 1997. The new contract becomes amendable August 31, 2001.
Among other provisions, the agreement granted pilots options to buy
5.75 million shares of AMR stock at $83.375, $10 less than the
average fair market value of the stock on the date of grant, May 5,
1997. The options are immediately exercisable. To offset the
potential dilution from the exercise of these options, and as
previously announced, the Company intends to repurchase in the open
market from time to time up to 5.75 million shares of its common
stock.
5.On May 7, 1997, American confirmed the structure of its aircraft
acquisition arrangement with Boeing announced in November 1996.
The arrangement includes firm orders for 75 Boeing 737s, 12 Boeing
757s and four Boeing 767-300ERs, with deliveries commencing in 1998
and continuing through 2004. The arrangement also contemplates the
purchase of Boeing 777 aircraft, although the Company has not yet
decided which of the 777 variants it will order. In addition to
the firm order, American has obtained "purchase rights" for
additional aircraft. Subject to the availability of delivery
positions, some of which are guaranteed, American will have the
right to acquire, at specified prices, new standard-body aircraft
with as little as 15 months prior notice; wide-bodied acquisitions
will require 18 months notice. Also, in April 1997, the Company
announced that AMR Eagle will acquire 12 new ATR 72 (Super ATR)
aircraft, with deliveries beginning in July 1997 and continuing
through May 1998, and will retire its 11 remaining Shorts 360
aircraft by January 1998. Excluding the acquisition of the Boeing
777 aircraft, payments for the new firm-order aircraft will
approximate $550 million in 1997, $800 million in 1998, $900
million in 1999, and $1.7 billion in 2000 and thereafter.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Summary AMR recorded net earnings for the three months ended March
31, 1997, of $152 million, or $1.65 per common share (primary and
fully diluted). This compares to net earnings of $157 million, or
$2.02 per common share ($1.84 fully diluted) for the first quarter of
1996. AMR's operating income decreased 13.0 percent or $52 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.
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, 1996.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
March 31,
1997 1996
Revenues
Passenger - American Airlines, Inc. $3,390 $3,287
- AMR Eagle, Inc. 248 267
Cargo 164 163
Other 204 197
4,006 3,914
Expenses
Wages, salaries and benefits 1,334 1,301
Aircraft fuel 520 441
Commissions to agents 314 315
Depreciation and amortization 262 252
Other operating expenses 1,352 1,343
Total operating expenses 3,782 3,652
Operating Income 224 262
Other Income (Expense) (80) (134)
Earnings Before Income Taxes $ 144 $ 128
Average number of equivalent employees 90,000 89,900
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Results of Operations (continued)
OPERATING STATISTICS
Three Months Ended
March 31,
1997 1996
American Airlines Jet Operations
Revenue passenger miles (millions) 25,295 24,632
Available seat miles (millions) 37,520 37,554
Cargo ton miles (millions) 480 498
Passenger load factor 67.4% 65.6%
Breakeven load factor 62.7% 59.8%
Passenger revenue yield per passenger mile 13.40 13.34
(cents)
Passenger revenue per available seat mile 9.04 8.75
(cents)
Cargo revenue yield per ton mile (cents) 33.77 32.26
Operating expenses per available seat mile 9.40 8.97
(cents)
Fuel consumption (gallons, in millions) 673 663
Fuel price per gallon (cents) 74.7 63.9
Fuel price per gallon, excluding fuel tax 69.7 59.0
(cents)
Operating aircraft at period-end 643 632
AMR Eagle, Inc.
Revenue passenger miles (millions) 602 636
Available seat miles (millions) 1,043 1,137
Passenger load factor 57.7% 56.0%
Operating aircraft at period-end 205 255
Operating aircraft at March 31, 1997, included:
Jet Aircraft: Regional Aircraft:
Airbus A300-600R 35 ATR 42 46
Boeing 727-200 81 Super ATR 33
Boeing 757-200 90 Saab 340B 90
Boeing 767-200 8 Saab 340B Plus 25
Boeing 767-200 Extended Shorts 360 11
Range 22
Boeing 767-300 Extended Total 205
Range 41
Fokker 100 75
McDonnell Douglas DC-10-10 11
McDonnell Douglas DC-10-30 5
McDonnell Douglas MD-11 15
McDonnell Douglas MD-80 260
Total 643
87.4% 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 9 years for jet aircraft and 4 years for
regional aircraft.
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Results of Operations (continued)
The Airline Group's revenues increased $92 million or 2.4 percent.
American's passenger revenues increased by 3.1 percent, $103
million. American's yield (the average amount one passenger pays to
fly one mile) of 13.40 cents increased by 0.4 percent compared to the
same period in 1996. Domestic yields increased 0.4 percent from
first quarter 1996, while international yields were flat.
American's traffic or revenue passenger miles (RPMs) increased 2.7
percent to 25.3 billion miles for the quarter ended March 31, 1997.
American's capacity or available seat miles (ASMs) of 37.5 billion
miles for the first quarter of 1997 were comparable to the same
period in 1996. American's domestic traffic increased 2.9 percent on
capacity increases of 0.5 percent and international traffic grew 2.3
percent on capacity decreases of 1.5 percent. The increase in
international traffic was driven by a 9.3 percent increase in traffic
to Latin America on capacity growth of 2.0 percent, partially offset
by a 3.7 percent decrease in traffic to Europe on a capacity decrease
of 4.8 percent.
The Airline Group's operating expenses increased 3.6 percent, $130
million. American's Jet Operations cost per ASM increased by 4.8
percent to 9.40 cents. Wages, salaries and benefits expense
increased $33 million, $20 million of which was a charge associated
with the 5.75 million stock options granted to American's pilots at
$10 below market value. Aircraft fuel expense increased 17.9
percent, $79 million, due to a 16.9 percent increase in American's
average price per gallon including tax. Other operating expenses
increased by $9 million, including a $27 million increase in
maintenance materials and repairs expense and a $20 million decrease
in aircraft rentals. The increase in maintenance materials and
repairs expense is due to additional aircraft check lines added at
American's maintenance bases as a result of the maturing of its
fleet. The decrease in aircraft rentals is a result of American's
decision to prepay the cancelable operating leases it had on 12 of
its Boeing 767-300 aircraft during June and July 1996. Following the
prepayments, these aircraft have been accounted for as capital leases
and the related costs included in amortization expense.
Other Income (Expense) decreased 40.3 percent or $54 million.
Interest expense decreased $44 million primarily due to the
retirement of debt prior to scheduled maturity and the conversion in
May 1996 of $1.02 billion in convertible subordinated debentures.
Interest income increased approximately $9 million due to higher
investment balances.
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Results of Operations (continued)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
March 31,
1997 1996
Revenues $ 440 $ 428
Operating Expenses 332 312
Operating Income 108 116
Other Income (Expense) 1 (1)
Earnings Before Income Taxes $ 109 $ 115
Average number of equivalent employees 8,200 7,900
Revenues
Revenues for The SABRE Group increased 2.8 percent, $12 million,
primarily due to growth in booking fees from associates. This growth
was driven by an increase in booking volumes, both domestic and
international, and an overall increase in the price per booking
charged to associates.
Expenses
Operating expenses increased 6.4 percent, $20 million, due primarily
to increases in salaries and benefits and subscriber incentive
expenses. Salaries and benefits increased due to an increase in the
average number of equivalent employees necessary to support The SABRE
Group's revenue growth and annual salary increases. Subscriber
incentive expenses increased in order to maintain and grow The SABRE
Group's travel agency subscriber base.
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Results of Operations (continued)
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
March 31,
1997 1996
Revenues $ 161 $ 157
Operating Expenses 144 134
Operating Income 17 23
Other Income (Expense) (1) (1)
Earnings Before Income Taxes $ 16 $ 22
Average number of equivalent employees 15,400 13,500
Revenues
Revenues for the Management Services Group increased 2.5 percent, or
$4 million. AMR Services Corporation experienced higher revenue as a
result of increased airline passenger, ramp and cargo handling
services provided by its AMR Airline Services division and increased
revenues provided by its AMR Distribution Systems division. This
increase was partially offset by a reduction in fees for services
provided by Airline Management Services to Canadian Airlines
International Limited (Canadian). In the fourth quarter of 1996, AMR
conceptually agreed to reduce its fees as part of Canadian's
restructuring program.
Expenses
Operating expenses increased 7.5 percent, $10 million, due to an
increase in wages, salaries and benefits resulting primarily from an
increase in the average number of equivalent employees.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the three month period
ended March 31, 1997, was $232 million, compared to $325 million in
1996. The $93 million decrease resulted primarily from increased tax
and profit sharing payments in the first quarter of 1997 compared to
the same period in 1996. Capital expenditures for the first quarter
of 1997 were $145 million. These capital expenditures were financed
with internally generated cash. Proceeds from the sale of equipment
and property of $85 million include proceeds received upon the
delivery of one of American's McDonnell Douglas MD-11 aircraft to
Federal Express Corporation in accordance with the 1995 agreement
between the two parties.
On May 7, 1997, American confirmed the structure of its aircraft
acquisition arrangement with Boeing announced in November 1996. The
arrangement includes firm orders for 75 Boeing 737s, 12 Boeing 757s
and four Boeing 767-300ERs, with deliveries commencing in 1998 and
continuing through 2004. Also, in April 1997, the Company announced
that AMR Eagle will acquire 12 new ATR 72 (Super ATR) aircraft, with
deliveries beginning in July 1997 and continuing through May 1998,
and will retire its 11 remaining Shorts 360 aircraft by January 1998.
Payments for the new firm-order aircraft will approximate $550
million in 1997, $800 million in 1998, $900 million in 1999, and $1.7
billion in 2000 and thereafter.
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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. Although the complaint
originally involved numerous claims, after a January 18, 1995
preemption ruling by the U.S. Supreme Court, only the plaintiffs'
breach of contract claim remains. Currently, the plaintiffs allege
that in May 1988, 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. The case has not been
certified as a class action. Although the case has been pending for
numerous years, it still is in a preliminary stage. American believes
the matter is without merit and is vigorously defending it.
Plaintiffs seek money damages for the alleged breach and attorneys'
fees.
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. Although American's motion to dismiss the
Gutterman lawsuit was denied, American's motion for summary judgment
is still pending. No class has been certified in the Gutterman
lawsuit and to date only very limited 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. The court entered a final judgment approving
the settlement on February 7, 1997.
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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.
On January 15, 1997, AMR filed a report on Form 8-K relative to a
press release announcing the Company's fourth quarter 1996 earnings.
On January 21, 1997, AMR filed a report on Form 8-K relative to the
Company's negotiations with the Allied Pilots Association.
On February 6, 1997, AMR filed a report on Form 8-K relative to
American's drawing under its credit facility agreement and
negotiation of an additional credit facility agreement.
On March 3, 1997, AMR filed a report on Form 8-K relative to the
Company's negotiations with the Allied Pilots Association.
On April 16, 1997, AMR filed a report on Form 8-K relative to the
Company's negotiations with the Allied Pilots Association and a press
release announcing the Company's first quarter 1997 earnings.
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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: May 12, 1997 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President and Chief
Financial Officer
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EXHIBIT 11
AMR CORPORATION
Computation of Earnings Per Share
(In millions, except per share amounts)
Three Months Ended
March 31,
1997 1996
Primary:
Earnings applicable to common shares $ 152 $ 157
Average shares outstanding 91 77
Add shares issued upon assumed conversion of
dilutive options, stock appreciation rights
and warrants and shares assumed issued for
deferred stock granted 3 3
Less assumed treasury shares purchased (2) (2)
Total primary shares 92 78
Primary earnings per share $ 1.65 $ 2.02
Fully diluted:
Earnings applicable to common shares $ 152 $ 157
Adjustments:
Add interest upon assumed conversion
of 6.125% convertible subordinated
debentures, net of tax - 11
Add dividends upon assumed conversion
of convertible preferred stock - 1
Earnings, as adjusted $ 152 $ 169
Average shares outstanding 91 77
Add shares issued upon:
Assumed conversion of 6.125%
convertible subordinated debentures - 13
Assumed conversion of preferred stock - 1
Assumed conversion of dilutive options,
stock appreciation rights and warrants
and shares assumed issued for
deferred stock granted 3 3
Less assumed treasury shares purchased (2) (2)
Total fully diluted shares 92 92
Fully diluted earnings per share $ 1.65 $ 1.84
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5
0000006201
AMR CORPORATION
1,000,000
3-MOS
DEC-31-1997
MAR-31-1997
89
1,657
1,512
19
611
4,511
20,301
7,247
20,323
5,299
4,411
0
0
3,261
2,563
20,323
0
4,426
0
4,077
0
0
103
257
105
152
0
0
0
152
1.65
1.65
