1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A No. 1
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998.
[ ]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 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 .
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 - 182,342,724 as of May 11, 1998
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INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations -- Three months ended March 31,
1998 and 1997
Condensed Consolidated Balance Sheet -- March 31, 1998 and
December 31, 1997
Condensed Consolidated Statement of Cash Flows -- Three months
ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements -- March 31,
1998
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 I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
Three Months Ended
March 31,
1998 1997
Revenues
Airline Group:
Passenger - American Airlines, Inc $3,578 $3,390
- AMR Eagle 256 248
Cargo 163 164
Other 226 204
4,223 4,006
The SABRE Group 554 440
Management Services Group 160 161
Less: Intergroup revenues (200) (181)
Total operating revenues 4,737 4,426
Expenses
Wages, salaries and benefits 1,624 1,540
Aircraft fuel 415 520
Commissions to agents 301 314
Depreciation and amortization 323 312
Maintenance materials and repairs 232 195
Other rentals and landing fees 218 218
Food service 164 161
Aircraft rentals 142 144
Other operating expenses 761 673
Total operating expenses 4,180 4,077
Operating Income 557 349
Other Income (Expense)
Interest income 34 27
Interest expense (78) (103)
Minority interest (13) (12)
Miscellaneous - net (15) (4)
(72) (92)
Earnings Before Income Taxes 485 257
Income tax provision 195 105
Net Earnings $ 290 $ 152
Earnings Per Common Share
Basic $ 1.68 $ 0.84
Diluted $ 1.62 $ 0.82
Number of Shares Used in
Computation
Basic 173 182
Diluted 179 185
The accompanying notes are an integral part of these financial
statements.
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AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited) (In millions)
March 31, December 31,
1998 1997
(Note 1)
Assets
Current Assets
Cash $ 124 $ 64
Short-term investments 2,057 2,370
Receivables, net 1,596 1,370
Inventories, net 636 636
Deferred income taxes 406 406
Other current assets 226 225
Total current assets 5,045 5,071
Equipment and Property
Flight equipment, net 8,438 8,543
Other equipment and property, net 1,931 1,874
Purchase deposits for flight equipment 966 754
11,335 11,171
Equipment and Property Under Capital Leases
Flight equipment, net 1,883 1,923
Other equipment and property, net 164 163
2,047 2,086
Route acquisition costs, net 937 945
Other assets, net 1,930 1,642
$ 21,294 $ 20,915
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,130 $ 1,021
Accrued liabilities 1,906 2,020
Air traffic liability 2,150 2,044
Current maturities of long-term debt 368 397
Current obligations under capital leases 136 135
Total current liabilities 5,690 5,617
Long-term debt, less current maturities 2,267 2,260
Obligations under capital leases,
less current obligations 1,552 1,629
Deferred income taxes 1,116 1,105
Other liabilities, deferred gains, deferred
credits and postretirement benefits 4,269 4,088
Stockholders' Equity
Common stock 182 182
Additional paid-in capital 3,090 3,104
Treasury stock (562) (485)
Retained earnings 3,690 3,415
6,400 6,216
$ 21,294 $20,915
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,
1998 1997
Net Cash Provided by Operating Activities $ 512 $ 232
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (505) (145)
Net decrease in short-term investments 313 86
Investment in joint venture (139) -
Proceeds from sale of equipment and property 78 85
Net cash used for investing activities (253) 26
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (93) (240)
Repurchase of common stock (164) -
Exercise of stock options 58 3
Net cash used for financing activities (199) (237)
Net increase in cash 60 21
Cash at beginning of period 64 68
Cash at end of period $ 124 $ 89
Cash Payments For:
Interest $ 96 $ 123
Income taxes 27 104
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, 1997 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/A No. 1 for the year ended
December 31, 1997.
2.Accumulated depreciation of owned equipment and property at March
31, 1998 and December 31, 1997, was $6.9 billion and $6.7 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at March 31, 1998 and December 31, 1997, was
$1.2 billion.
3.As discussed in the notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K/A No. 1 for the
year ended December 31, 1997, 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., through increased landing fees and/or
other charges. The ultimate resolution of this matter is not
expected to have a significant impact on the financial position or
liquidity of AMR.
4.Subsequent to December 31, 1997, the Company exercised its purchase rights
to acquire 25 Boeing 737-800s and eight Boeing 777-200IGWs. As of May 15,
1998, the Company had commitments to acquire the following aircraft: 100
Boeing 737-800s, 19 Boeing 777-200IGWs, 12 Boeing 757-200s, seven
Boeing 767-300ERs, 38 Embraer EMB-145s and 25 Bombardier CRJ-700s.
Deliveries of these aircraft commence in 1998 and will continue
through 2004. Payments for these aircraft will approximate $1.3
billion in 1998, $2.3 billion in 1999, $1.2 billion in 2000 and an
aggregate of approximately $1.9 billion in 2001 through 2004. The
exercise of these aircraft purchase rights will allow the Company
to continue the retirement of its Boeing 727-200 fleet, which the
Company anticipates to be complete by 2004, as well as to provide
for modest growth.
5.In March 1998, the Company exercised its option to sell seven MD-11
aircraft to Federal Express Corporation (FedEx), thereby committing
to sell its entire MD-11 fleet to FedEx. Seven aircraft have
been delivered as of March 31, 1998. The remaining 12 aircraft will
be delivered to FedEx between 1998 and 2003.
6.In April 1998, the Company's Board of Directors approved a two-for-
one stock split in the form of a stock dividend, subject to
shareholder approval of an amendment to the Company's Certificate of
Incorporation to increase the number of authorized common shares. On
May 20, 1998, the Company's shareholders approved the amendment to the
Company's Certificate of Incorporation thereby increasing the total
number of authorized shares of all classes to 770 million, of which
20 million are shares of preferred stock (without par value) and 750
million are shares of common stock ($1 par value). The stock split
was effective on June 9, 1998 for shareholders of record on May 26,
1998. All share and earnings per share amounts have been restated to
give effect to the stock split.
7.In April 1998, American and US Airways, Inc. (US Airways) announced
plans to create a broad marketing alliance between the two carriers which
would include (i) reciprocal benefits to members of both carriers
frequent flyer programs and (ii) access to the carriers domestic
and international club facilities. The companies expect to
implement the first phases of linking their frequent flier programs
and lounge access by late summer.
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
8.In January 1998, The SABRE Group completed the execution of a 25-year
information technology services agreement with US Airways. Under the
terms of the agreement, The SABRE Group will provide substantially all
of US Airways' information technology services. In connection with the
agreement, The SABRE Group purchased substantially all of US Airways'
information technology assets for approximately $47 million and granted
US Airways two tranches of stock options, each to acquire 3 million
shares of The SABRE Group's Class A Common Stock(SABRE Common Stock).
During certain periods, US Airways may select an alternative vehicle
of substantially equivalent value in place of receiving stock. During
the first quarter, a long-term liability and a related deferred asset
equal to the number of options outstanding multiplied by the difference
between the exercise price of the options and the market price of SABRE's
Common Stock was recorded. The asset and liability will be adjusted
based on subsequent changes in the market price of SABRE Common Stock.
The deferred asset is being amortized over the eleven-year non-cancelable
portion of the agreement.
9.As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the
adoption of SFAS 130 had no impact on the Company's net income or
stockholders' equity. SFAS 130 requires unrealized gains or losses
on the Company's available-for-sale securities and changes in
minimum pension liabilities, which prior to adoption were reported
separately in stockholders' equity, to be included in other
comprehensive income. Total comprehensive income for the three
months ended March 31, 1998 and 1997 was approximately $290 million
and $153 million, respectively.
Effective January 1, 1998, the Company adopted early the provisions of
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities," (SOP 98-5). SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. The
adoption of SOP 98-5 did not have a material impact on the
Company's financial position or results of operations for the
quarter ended March 31, 1998.
10.The following table sets forth the computations of basic and
diluted earnings per share (in millions, except per share data):
Three Months Ended
March 31,
1998 1997
Numerator:
Net Earnings - Numerator for basic
and diluted earnings per share $ 290 $ 152
Denominator:
Denominator for basic earnings per
share - weighted-average shares 173 182
Effect of dilutive securities:
Employee options and shares 14 6
Assumed treasury shares purchased (8) (3)
Dilutive potential common shares 6 3
Denominator for diluted earnings per
share - adjusted weighted-average
and assumed conversions 179 185
Basic earnings per share $ 1.68 $ 0.84
Diluted earnings per share $ 1.62 $ 0.82
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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 March 31, 1998 and 1997
Summary AMR recorded net earnings for the three months ended March
31, 1998 of $290 million, or $1.62 per common share diluted. This
compares to net earnings of $152 million, or $0.82 per common share
diluted for the first quarter of 1997. AMR's operating income of
$557 million increased 59.6 percent, or $208 million, compared to
$349 million for the same period in 1997.
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 Holding Corporation; 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/A No. 1 for the year ended December 31,1997. The minority interest
in the earnings of consolidated subsidiaries of $13 million and $12
million for the three months ended March 31, 1998 and 1997,
respectively, has not been allocated to a reporting segment.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
March 31,
1998 1997
Revenues
Passenger - American Airlines, Inc. $3,578 $3,390
- AMR Eagle 256 248
Cargo 163 164
Other 226 204
4,223 4,006
Expenses
Wages, salaries and benefits 1,382 1,334
Aircraft fuel 415 520
Commissions to agents 301 314
Depreciation and amortization 258 262
Maintenance materials and repairs 229 193
Other operating expenses 1,213 1,159
Total operating expenses 3,798 3,782
Operating Income 425 224
Other Expense (62) (80)
Earnings Before Income Taxes $ 363 $ 144
Average number of equivalent employees 91,000 90,000
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RESULTS OF OPERATIONS (continued)
OPERATING STATISTICS
Three Months Ended
March 31,
1998 1997
American Airlines Jet Operations
Revenue passenger miles (millions) 25,388 25,295
Available seat miles (millions) 37,707 37,520
Cargo ton miles (millions) 496 480
Passenger load factor 67.3% 67.4%
Breakeven load factor 58.3% 62.7%
Passenger revenue yield per passenger mile 14.09 13.40
(cents)
Passenger revenue per available seat mile 9.49 9.04
(cents)
Cargo revenue yield per ton mile (cents) 32.55 33.77
Operating expenses per available seat mile 9.35 9.40
(cents)
Fuel consumption (gallons, in millions) 681 673
Fuel price per gallon (cents) 58.9 74.7
Fuel price per gallon, excluding fuel tax 53.9 69.7
(cents)
Operating aircraft at period-end 639 643
AMR Eagle
Revenue passenger miles (millions) 615 602
Available seat miles (millions) 1,071 1,043
Passenger load factor 57.4% 57.7%
Operating aircraft at period-end 202 205
Operating aircraft at March 31, 1998, included:
American Airlines AMR Eagle Aircraft:
Aircraft:
Airbus A300-600R 35 ATR 42 44
Boeing 727-200 78 Embraer 145 2
Boeing 757-200 90 Super ATR 41
Boeing 767-200 8 Saab 340B 90
Boeing 767-200 Extended Range 22 Saab 340B Plus 25
Boeing 767-300 Extended Range 41 Total 202
Fokker 100 75
McDonnell Douglas DC-10-10 13
McDonnell Douglas DC-10-30 5
McDonnell Douglas MD-11 12
McDonnell Douglas MD-80 260
Total 639
87.8% of American's aircraft fleet is Stage III, a classification of
aircraft meeting noise standards as promulgated by the Federal
Aviation Administration.
Average aircraft age is 10.24 years for American's aircraft and 5.57
years for AMR Eagle aircraft.
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RESULTS OF OPERATIONS (continued)
The Airline Group's revenues increased $217 million, or 5.4 percent,
in the first quarter of 1998 versus the same period last year.
American's passenger revenues increased by 5.5 percent, or $188
million, primarily as a result of strong demand for air travel driven
by continued economic growth in the U.S., Europe and Latin America,
as well as a shift to a greater mix of full fare traffic. American's
yield (the average amount one passenger pays to fly one mile) of
14.09 cents increased by 5.1 percent compared to the same period in
1997. Domestic yields increased 6.4 percent from the first quarter
of 1997. International yields increased 2.8 percent, primarily due
to a 4.1 percent increase in Europe and a 1.2 percent increase in
Latin America, partially offset by a decrease of 6.4 percent in
Pacific yields. The increase in European yields was partially
attributable to the cancellation of American's New York Kennedy -
Zurich, New York - Brussels and Miami - Frankfurt routes in 1997,
while the decrease in Pacific yields was primarily due to the
weakness in Asian economies.
American's traffic or revenue passenger miles (RPMs) increased 0.4
percent to 25.4 billion miles for the quarter ended March 31, 1998.
American's capacity or available seat miles (ASMs) increased 0.5
percent to 37.7 billion miles in the first quarter of 1998.
American's domestic traffic decreased 0.5 percent on capacity
decreases of 0.3 percent and international traffic grew 2.4 percent
on capacity growth of 2.3 percent. The increase in international
traffic was driven by a 3.9 percent increase in traffic to Latin
America on capacity growth of 8.3 percent and a 11.3 percent increase
in traffic to the Pacific on capacity growth of 1.6 percent,
partially offset by a 0.9 percent decrease in traffic to Europe on a
capacity decrease of 5.7 percent, primarily due to the cancellation
of the above mentioned routes in 1997.
American's yield and traffic were both negatively impacted in 1997 by
the effects of the pilot contract negotiations throughout the first
quarter of 1997. During the first quarter of 1998, American's yield
and traffic were adversely impacted by the imposition of the
transportation tax for the entire quarter compared to slightly less
than one month during the first quarter of 1997.
The Airline Group's other revenues increased $22 million, or 10.8
percent, primarily as a result of an increase in aircraft maintenance
work performed by American for other airlines and increased employee
travel service charges.
The Airline Group's operating expenses increased 0.4 percent, or $16
million. American's Jet Operations cost per ASM decreased 0.5
percent to 9.35 cents. Wages, salaries and benefits increased 3.6
percent, or $48 million, primarily due to an increase in the average
number of equivalent employees, contractual wage rate and seniority
increases that are built into the Company's labor contracts and an
increase in the provision for profit sharing. The increased
headcount is due primarily to increased volumes of work at American's
maintenance bases and increases associated with American's flight
dependability initiatives. Aircraft fuel expense decreased 20.2
percent, or $105 million, due to a 21.1 percent decrease in
American's average price per gallon, including taxes, partially
offset by a 1.2 percent increase in American's fuel consumption.
Commissions to agents decreased 4.1 percent, or $13 million, despite
a 5.5 percent increase in passenger revenues, due to the continued
benefit from the commission rate reduction initiated during September
1997. Maintenance materials and repairs expense increased $36 million,
or 18.7 percent, due primarily to higher volumes for both airframe and
engine maintenance at American's maintenance bases as a result of the
maturing of its fleet.
Other Expense decreased 22.5 percent, or $18 million, due primarily to
an increase in capitalized interest on aircraft purchase deposits
and an increase in interest income resulting from 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,
1998 1997
Revenues $ 554 $ 440
Operating Expenses 439 332
Operating Income 115 108
Other Income 2 1
Earnings Before Income Taxes $ 117 $ 109
Average number of equivalent employees 10,700 8,200
Revenues
Revenues for The SABRE Group increased 25.9 percent, or $114 million.
Electronic travel distribution revenues increased approximately $36
million, or 11.7 percent, primarily due to growth in booking fees.
The growth in booking fees was due to an increase in booking volumes
in Europe and Latin America and an overall increase in the price per
booking charged to associates. In addition, the three months ended
March 31, 1998 includes approximately $12 million of revenue from
services provided to The SABRE Group's joint venture company formed to
manage travel distribution in the Asia-Pacific region, ABACUS
International Ltd. (ABACUS). Revenues from information technology solutions
increased approximately $78 million, or 58.3 percent. Revenues from
unaffiliated customers increased approximately $60 million, primarily
related to the commencement of services performed under the information
technology services agreement with US Airways and Year 2000 testing and
compliance enhancements for Canadian Airlines International Limited.
Revenues from other AMR units increased approximately $18 million primarily
related to Year 2000 services performed for AMR.
Expenses
Operating expenses increased 32.2 percent, or $107 million, due
primarily to increases in salaries, benefits and employee related
costs, subscriber incentive expenses and other operating expenses.
Salaries, benefits and employee related costs increased due to an
increase in the average number of employees necessary to support The
SABRE Group's business growth and wage and salary increases for
existing employees. Subscriber incentive expenses increased in order
to maintain and expand The SABRE Group's travel agency subscriber
base. Other operating expenses increased primarily due to increased
software development expenses related to The SABRE Group's Year 2000
compliance program and to software development for ABACUS.
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RESULTS OF OPERATIONS (continued)
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
March 31,
1998 1997
Revenues $ 160 $ 161
Operating Expenses 143 144
Operating Income 17 17
Other Income (Expense) 1 (1)
Earnings Before Income Taxes $ 18 $ 16
Average number of equivalent employees 12,900 15,400
Revenues
Revenues for the Management Services Group decreased 0.6 percent, or
$1 million. This decrease in revenues was primarily the result of
the sale of Data Management Services in September 1997 and decreased
telemarketing services provided by TeleService Resources. This
decrease was substantially offset by higher revenues for AMR Combs
due to higher aircraft sales and increased airline passenger, ramp
and cargo handling services provided by AMR Services.
Expenses
Operating expenses decreased 0.7 percent, or $1 million, primarily
due to a decrease in expenses associated with the sale of Data
Management Services in September 1997 and decreased telemarketing
services provided by TeleService Resources. This decrease was
substantially offset by an increase in other operating expenses
commensurate with the increase in revenues for AMR Combs and AMR
Services.
13
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the three month period
ended March 31, 1998 was $512 million, an increase of $280 million
over the same period in 1997. This increase resulted primarily from
increased net earnings and an increase in the air traffic liability
due to higher advanced sales. Capital expenditures for the first
three months of 1998 were $505 million, and included purchase
deposits on new aircraft orders of $212 million, computer-related
equipment of $142 million, and the acquisition of three ATR 72 and
two EMB-145 aircraft. These capital expenditures were financed with
internally generated cash. Investment in joint venture for the first
three months of 1998 represented the cash paid by The SABRE Group for
a 35 percent interest in the joint venture company, called ABACUS
International Ltd., created to manage travel distribution in the Asia-
Pacific region. Proceeds from the sale of equipment and property of
$78 million for the first three months of 1998 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 and other aircraft equipment
sales.
As of May 15, 1998, the Company had commitments to acquire the
following aircraft: 100 Boeing 737-800s, 19 Boeing 777-200IGWs, 12
Boeing 757-200s, seven Boeing 767-300ERs, 38 Embraer EMB-145s and 25
Bombardier CRJ-700s. Deliveries of these aircraft commence in 1998
and will continue through 2004. Payments for these aircraft will
approximate $1.3 billion in 1998, $2.3 billion in 1999, $1.2 billion
in 2000 and an aggregate of approximately $1.9 billion in 2001
through 2004. The exercise of these aircraft purchase rights will
allow the Company to continue the retirement of its Boeing 727-200
fleet, which the Company anticipates to be complete by 2004, as well
as to provide for modest growth. The Company will determine the
method of financing these aircraft acquisitions near their respective
delivery date; however, deliveries in 1998 are currently expected to
be financed with internally generated funds as well as external
financing.
During the three months ended March 31, 1998, a total of approximately
2.3 million shares were purchased by the Company under two stock
repurchase programs initiated in 1997 at a total cost of approximately
$149 million, and proceeds of approximately $58 million were received by
the Company from the exercise of stock options. The Company expects to
spend approximately $200 million during 1998 to repurchase the remainder
of the shares under the stock repurchase programs.
In 1997, The SABRE Group's Board of Directors authorized, subject
to certain business and market conditions, the repurchse of up to 1.5
million shares of The SABRE Group's Class A Common Stock. During the three
months ended March 31, 1998, a total of approximately 609,000 shares were
purchased by The SABRE Group at a total cost of approximately $20 million.
YEAR 2000 COMPLIANCE
Year 2000 Compliance The Company has implemented a Year 2000
compliance program designed to ensure that the Company's computer
systems and applications will function properly beyond 1999. Such
program includes both systems and applications operated by the
Company's businesses as well as software licensed to or operated for
third parties by The SABRE Group. The Company believes that it has
allocated adequate resources for this purpose and expects its Year
2000 date conversion program to be completed on a timely basis. The
Company has commenced testing on certain systems and applications and
will continue to test the remainder of the systems and applications
throughout the course of the Year 2000 program. However, there can
be no assurance that the systems of other parties (e.g., Federal
Aviation Administration, Department of Transportation, airport
authorities, data providers) upon which the Company's businesses also
rely will be converted on a timely basis. The Company's business,
financial condition, or results of operations could be materially
adversely affected by the failure of its systems and applications,
those licensed to or operated for third parties, or those operated by
other parties to properly operate or manage dates beyond 1999.
14
YEAR 2000 COMPLIANCE (continued)
The Company expects to incur significant internal staff costs, as
well as consulting and other expenses, related to infrastructure and
facilities enhancements necessary to prepare its systems for the Year
2000. The Company's total estimated cost of the Year 2000 compliance
program is approximately $215 million to $250 million, of which
approximately $100 million was incurred as of March 31, 1998. The
remaining expenses are expected to be incurred primarily throughout
the remainder of 1998. A significant portion of these costs are not
likely to be incremental costs to the Company, but rather will
represent the redeployment of existing information technology
resources. Maintenance or modification costs associated with making
existing computer systems Year 2000 compliant will be expensed as
incurred.
The costs of the project and the date on which the Company plans
to complete the Year 2000 compliance program are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors.
However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from these
estimates. Specific factors that might cause such material
differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and
correct all relevant computer codes and similar uncertainties.
DALLAS LOVE FIELD
In 1968, as part of an agreement between the cities of Fort Worth and
Dallas to build and operate Dallas/Fort Worth Airport (DFW), a bond
ordinance was enacted by both cities (the Bond Ordinance). The Bond
Ordinance required both cities to direct all scheduled interstate
passenger operations to DFW and was an integral part of the bonds
issued for the construction and operation of DFW. In 1979, as part of
a settlement to resolve litigation with Southwest Airlines, the cities
agreed to expand the scope of operations allowed under the Bond
Ordinance at Dallas' Love Field. This settlement was codified by
Congress and became known as the Wright Amendment. The Wright
Amendment limited interstate operations at Love Field to the four
states contiguous to Texas (New Mexico, Oklahoma, Arkansas and
Louisiana) and prohibited through ticketing to any destination outside
that perimeter. In 1997, without the consent of either city, Congress
amended the Wright Amendment by (i) adding three states (Kansas,
Mississippi and Alabama) to the perimeter and (ii) removing all
federal restrictions on large aircraft configured with 56 seats or
less (the 1997 Amendment). In October 1997, the City of Fort Worth
filed suit in state district court against the City of Dallas and
others seeking to enforce the Bond Ordinance. Fort Worth contends
that the 1997 Amendment does not preclude the City of Dallas from
exercising its proprietary rights to restrict traffic at Love Field in
a manner consistent with the Bond Ordinance and, moreover, that it has
an obligation to do so. American has joined in this litigation.
Thereafter, Dallas filed a separate declaratory judgment action in
federal district court seeking to have the court declare that, as a
matter of law, the 1997 Amendment precludes Dallas from exercising any
restrictions on operations at Love Field. Further, in March 1998,
Southwest Airlines, relying upon a 1982 injunction that resulted from
prior litigation that established Southwest's right to operate
intrastate flights from Love Field, filed a motion in Dallas federal
court seeking to enjoin the Fort Worth lawsuit. The court has not yet
ruled on Southwest's motion. As a result of the foregoing, the future
of interstate flight operations at Love Field and American's DFW hub
is uncertain. To the extent that operations at Love Field to new
interstate destinations increase, American may be compelled for
competitive reasons to divert resources from DFW to Love Field. A
substantial diversion of resources could adversely impact American's
business.
Recently, American announced its intent to initiate limited
intrastate service at Love Field and has commenced implementation of a
business plan to start such service, including requesting gates at
Love Field from the City of Dallas.
15
OTHER INFORMATION
Several items of legislation have been introduced in Congress that
would, if enacted; (i) authorize the withdrawal of slots from major
carriers -- including American -- at key airports for redistribution
to new entrants and smaller carriers and/or (ii) provide financial
assistance, in the form of guarantees and/or subsidized loans, to
smaller carriers for aircraft purchases. In addition, the Department of
Justice is investigating competition at major hub airports, and in April
1998, the Department of Transportation (DOT) issued proposed competition
guidelines which would severely limit major carriers' ability to compete
with new entrant carriers. The outcomes of the proposed legislation, the
investigations and the proposed DOT guidelines are unknown. However,
to the extent that (i) slots are taken from American at key airports,
(ii) restrictions are imposed upon American's ability to respond to a
competitor, or (iii) competitors have a financial advantage in the
purchase of aircraft because of federal assistance, American's
business may be adversely impacted.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131), effective for
fiscal years beginning after December 15, 1997. SFAS 131 supersedes
SFAS 14, "Financial Reporting for Segments of a Business Enterprise,"
and requires that a public company report annual and interim
financial and descriptive information about its reportable operating
segments pursuant to criteria that differ from current accounting
practice. Operating segments, as defined, are components of an
enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Because this statement addresses how supplemental financial
information is disclosed in annual and interim reports, the adoption
will have no impact on the Company's financial condition or results
of operations.
16
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 plaintiff
alleges that the 10 percent federal excise transportation tax should
have been excluded from the "fare" upon which the 25 percent penalty
was assessed. Summary judgment was granted in favor of American but
subsequently reversed and vacated by the Illinois Appellate Court. In
August 1997, the Court denied the plaintiffs' motion for class
certification. American is vigorously defending the lawsuit.
In connection with its frequent flyer program, American was sued in
two cases (Wolens et al v. American Airlines, Inc. and Tucker v.
American Airlines, Inc.) seeking class action certification that were
consolidated and are currently pending in the Circuit Court of Cook
County, Illinois. The litigation arises from certain changes made to
American's AAdvantage frequent flyer program in May 1988 which 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. In the consolidated action,
the plaintiffs allege that these changes breached American's contract
with AAdvantage members, seek money damages for the alleged breach and
attorney's fees and seek to represent all persons who joined the
AAdvantage program before May 1988 and accrued mileage credits before
the seat limitations were introduced. The complaint originally
asserted several state law claims, however only the plaintiffs' breach
of contract claim remains after the U. S. Supreme Court ruled that
federal law preempted the other claims. Although the case has been
pending for numerous years, it still is in its preliminary stages.
The court has not ruled as to whether the case should be certified as
a class action. American is vigorously defending the lawsuit.
Gutterman et al. v. American Airlines, Inc., is also pending in the
Circuit Court of Cook County, Illinois, arising from an announced
increase in AAdvantage mileage credits required for free travel. 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, giving
rise to the Gutterman litigation filed on that same date. The
Gutterman plaintiffs claim that the announced increase in award
mileage level violated the terms and conditions of the agreement
between American and AAdvantage members. A hearing on plaintiffs'
motion for class certification is currently scheduled for May 19,
1998. To date, only limited discovery has been undertaken. American
is vigorously defending the lawsuit.
A federal grand jury is investigating whether American handled
hazardous materials and processed courier shipments, cargo and excess
baggage in accordance with applicable laws and regulations. In
connection with this investigation, federal agents executed a search
warrant at American's Miami facilities on October 22, 1997. In
addition, American was served with a subpoena calling for the
production of documents relating to the handling of courier shipments,
cargo, excess baggage and hazardous materials. American has produced
documents responsive to the subpoena and intends to cooperate fully
with the government's investigation.
17
PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
27.1 Financial Data Schedule as of March
31, 1998.
27.2 Restated Financial Data Schedule as of
March 31, 1997.
On April 15, 1998, AMR filed a report on Form 8-K relative to two
press releases issued by the Company. The first press release was to
report the Company's first quarter 1998 earnings and to announce a
proposed two-for-one stock split in the form of a stock dividend.
The proposed stock split is contingent upon shareholder approval of an
amendment to the Company's Certificate of Incorporation at the
Company's annual meeting on May 20, 1998. If the amendment is
approved, the stock split will be effective for shareholders of AMR's
common stock of record on May 26, 1998 and stock certificates for the
new shares will be distributed on or about June 9, 1998. The second
press release was issued to announce that Robert L. Crandall,
Chairman, President and CEO of the Company and Chairman and CEO of
American Airlines, Inc. will retire from his affiliations with the
Company after the AMR annual meeting on May 20, 1998. Donald J.
Carty, currently an Executive Vice President and President of
American, has been chosen by the Board of Directors to succeed Mr.
Crandall.
18
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMR CORPORATION
Date: June 12, 1998 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President and Chief
Financial Officer
5
1,000,000
3-MOS
DEC-31-1998
MAR-31-1998
124
2,057
1,622
26
636
5,045
21,466
8,084
21,294
5,690
3,819
0
0
2,710
3,690
21,294
0
4,737
0
4,180
0
0
78
485
195
290
0
0
0
290
1.68
1.62
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
0.84
0.82
