1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 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, (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 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 November 6, 1998
2
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and nine months
ended September 30, 1998 and 1997
Condensed Consolidated Balance Sheets -- September 30, 1998 and
December 31, 1997
Condensed Consolidated Statements of Cash Flows -- Nine months
ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements -- September
30, 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 STATEMENTS OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
Three Months Nine Months Ended
Ended
September 30, September 30,
1998 1997 1998 1997
Revenues
Airline Group:
Passenger - American
Airlines, Inc. $3,871 $ 3,713 $ 11,238 $ 10,744
- American Eagle 304 262 849 766
Cargo 158 169 490 507
Other 250 233 720 658
4,583 4,377 13,297 12,675
The SABRE Group 604 457 1,735 1,346
Management Services Group 31 26 86 73
Less: Intergroup revenues (172) (154) (514) (451)
Total operating revenues 5,046 4,706 14,604 13,643
Expenses
Wages, salaries and
benefits 1,632 1,521 4,817 4,480
Aircraft fuel 400 466 1,219 1,457
Depreciation and
amortization 328 306 966 919
Commissions to agents 311 332 934 975
Maintenance, materials
and repairs 251 224 704 633
Other rentals and
landing fees 231 223 667 658
Food service 184 176 523 510
Aircraft rentals 142 143 427 430
Other operating expenses 835 708 2,343 2,054
Total operating expenses 4,314 4,099 12,600 12,116
Operating Income 732 607 2,004 1,527
Other Income (Expense)
Interest income 37 40 103 100
Interest expense (93) (101) (280) (310)
Interest capitalized 28 5 71 10
Minority interest (12) (10) (37) (32)
Miscellaneous - net 16 - (3) (11)
(24) (66) (146) (243)
Income From Continuing Operations
Before Income Taxes 708 541 1,858 1,284
Income tax provision 277 219 734 519
Income From Continuing
Operations 431 322 1,124 765
Income From Discontinued
Operations, net of
applicable income taxes 2 1 8 12
Net Earnings $ 433 $ 323 $ 1,132 $ 777
Continued on next page.
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AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Unaudited) (In millions, except per share amounts)
Three Months Nine Months Ended
Ended
September 30, September 30,
1998 1997 1998 1997
Earnings Applicable to
Common Shares $ 433 $ 323 $ 1,132 $ 777
Earnings Per Common Share
Basic
Continuing Operations $ 2.56 $ 1.83 $ 6.57 $ 4.25
Discontinued Operations 0.01 - 0.05 0.06
Net Earnings $ 2.57 $ 1.83 $ 6.62 $ 4.31
Diluted
Continuing Operations $ 2.48 $ 1.78 $ 6.34 $ 4.16
Discontinued Operations 0.01 - 0.05 0.06
Net Earnings $ 2.49 $ 1.78 $ 6.39 $ 4.22
Number of Shares Used in
Computation
Basic 169 176 171 180
Diluted 174 181 177 184
The accompanying notes are an integral part of these financial
statements.
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AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
September December
30, 31,
1998 1997
(Note 1)
Assets
Current Assets
Cash $ 72 $ 62
Short-term investments 2,180 2,370
Receivables, net 1,732 1,301
Inventories, net 609 626
Deferred income taxes 404 406
Other current assets 192 221
Total current assets 5,189 4,986
Equipment and Property
Flight equipment, net 8,699 8,543
Other equipment and property, net 1,879 1,776
Purchase deposits for flight equipment 1,405 754
11,983 11,073
Equipment and Property Under Capital Leases
Flight equipment, net 1,886 1,923
Other equipment and property, net 166 163
2,052 2,086
Route acquisition costs, net 923 945
Other assets, net 2,047 1,769
$ 22,194 $ 20,859
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,287 $ 1,028
Accrued liabilities 2,051 1,970
Air traffic liability 2,268 2,044
Current maturities of long-term debt 203 395
Current obligations under capital leases 140 135
Total current liabilities 5,949 5,572
Long-term debt, less current maturities 2,380 2,248
Obligations under capital leases,
less current obligations 1,592 1,629
Deferred income taxes 1,387 1,112
Other liabilities, deferred gains, deferred
credits and postretirement benefits 4,326 4,082
Stockholders' Equity
Common stock 182 182
Additional paid-in capital 3,068 3,104
Treasury stock (1,201) (485)
Retained earnings 4,511 3,415
6,560 6,216
$ 22,194 $ 20,859
The accompanying notes are an integral part of these financial
statements.
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AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
Nine Months Ended
September 30,
1998 1997
Net Cash Provided by Operating Activities $ 2,589 $ 2,382
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (1,950) (670)
Net decrease (increase) in short-term
investments 190 (1,148)
Investment in joint venture (140) -
Proceeds from sale of equipment
and property 206 182
Net cash used for investing activities (1,694) (1,636)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (349) (318)
Issuance of long-term debt 165 -
Sale-leaseback transactions 108 -
Repurchases of common stock (889) (592)
Proceeds from exercise of stock options 80 126
Net cash used for financing activities (885) (784)
Net increase (decrease) in cash 10 (38)
Cash at beginning of period 62 61
Cash at end of period $ 72 $ 23
Cash Payments For:
Interest $ 226 $ 313
Income taxes 435 322
Financing Activities Not Affecting Cash:
Capital lease obligations incurred $ 108 $ -
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 consolidated financial statements at that
date and restated for discontinued operations as described in
Footnote 8. 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.
Certain amounts from 1997 have been reclassified to conform with
the 1998 presentation.
2.Accumulated depreciation of owned equipment and property at
September 30, 1998 and December 31, 1997, was $7.2 billion and $6.6
billion, respectively. Accumulated amortization of equipment and
property under capital leases at September 30, 1998 and December
31, 1997, was $1.3 billion and $1.2 billion, respectively.
3.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 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.During 1998, the Company exercised its purchase rights to acquire
25 Boeing 737-800s, 23 Boeing 777-200IGWs and eight Embraer EMB-
145s. In addition, during the third quarter, AMR Eagle entered
into an agreement to acquire 75 Embraer EMB-135 aircraft, with
deliveries beginning in July 1999 and continuing through 2005. As
of November 16, 1998, the Company had commitments to acquire the
following aircraft: 100 Boeing 737-800s, 34 Boeing 777-200IGWs,
seven Boeing 757-200s, four Boeing 767-300ERs, 75 Embraer EMB-135s,
34 Embraer EMB-145s and 25 Bombardier CRJ-700s. Deliveries of
these aircraft will occur during the remainder of 1998 and will
continue through 2005. Payments for these aircraft will
approximate $210 million during the remainder of 1998, $2.6 billion
in 1999, $1.9 billion in 2000 and an aggregate of approximately
$3.0 billion in 2001 through 2005. The exercise of these aircraft
purchase rights will allow the Company to continue the retirement
of its Boeing 727-200 and McDonnell Douglas DC-10 fleets, 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. Eight aircraft have been
delivered as of September 30, 1998. The remaining 11 aircraft will
be delivered to FedEx between 1999 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 of
stock 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.
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
7.In July 1998, the Company's board of directors authorized
management to repurchase $500 million of the Company's outstanding
common stock. The Company completed this repurchase program in
September 1998. In October 1998, the Company's board of directors
authorized management to repurchase up to an additional $500
million of the Company's outstanding common stock.
8.On September 29, 1998, the Company announced its plan to sell most
of the companies that comprise the largest unit of the Management
Services Group - AMR Global Services Corporation. The companies to
be sold include AMR Services, AMR Combs and TeleService Resources.
The Company expects to complete the sale of these companies by the
first quarter of 1999.
The results of operations for AMR Services, AMR Combs and
TeleService Resources have been reflected in the consolidated
statements of operations as discontinued operations. The amounts
shown are net of income taxes of approximately $1.7 million and
$650,000 for the three months ended September 30, 1998 and 1997,
respectively, and $6.8 million and $7.9 million for the nine months
ended September 30, 1998 and 1997, respectively. Revenues from the
operations of AMR Services, AMR Combs and TeleService Resources
were $122 million and $126 million for the three months ended
September 30, 1998 and 1997, respectively, and $376 million and
$392 million for the nine months ended September 30, 1998 and 1997,
respectively.
9.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 of 1998, a long-term liability and a related
deferred asset equal to the number of options granted multiplied by
the difference between the exercise price of the options and the
market price of SABRE Common Stock were recorded. The asset and
liability are adjusted based on changes in the market price of
SABRE Common Stock. The deferred asset is being amortized over the
11 year non-cancelable portion of the agreement.
10. 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. For the third quarter of 1998 and
1997, total comprehensive income was approximately $430 million and
$324 million, respectively. Total comprehensive income for the
nine months ended September 30, 1998 and 1997 was approximately
$1.129 billion and $778 million, respectively.
Effective January 1, 1998, the Company adopted 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 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 three or nine months ended
September 30, 1998.
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
11. The following table sets forth the computations of basic and
diluted earnings per share from continuing operations (in millions,
except per share data):
Three Months Nine Months Ended
Ended
September 30, September 30,
1998 1997 1998 1997
Numerator:
Income from continuing
operations - Numerator for
basic and diluted earnings
per share $ 431 $ 322 $1,124 $ 765
Denominator:
Denominator for basic
earnings per share -
weighted-average shares 169 176 171 180
Effect of dilutive securities:
Employee options and shares 12 18 13 13
Assumed treasury shares
purchased (7) (13) (7) (9) )
Dilutive potential common shares 5 5 6 4
Denominator for diluted
earnings per share 174 181 177 184
Basic earnings per share from
continuing operations $ 2.56 $ 1.83 $ 6.57 $4.25
Diluted earnings per share
from continuing operations $ 2.48 $ 1.78 $ 6.34 $4.16
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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 September 30, 1998 and 1997
Summary AMR recorded income from continuing operations for the three
months ended September 30, 1998 of $431 million, or $2.48 per common
share diluted. This compares to income from continuing operations of
$322 million, or $1.78 per common share diluted, for the third
quarter of 1997. AMR's operating income of $732 million increased
20.6 percent, or $125 million, compared to $607 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.
As discussed in Note 8, on September 29, 1998, the Company announced
its plan to sell most of the companies that comprise the largest unit
of the Management Services Group - AMR Global Services Corporation.
The companies to be sold include AMR Services, AMR Combs and
TeleService Resources. Thus, the results of operations for AMR
Services, AMR Combs and TeleService Resources have been reflected in
the consolidated statements of operations as discontinued operations.
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 $12 million
and $37 million for the three and nine months ended September 30,
1998 and $10 million and $32 million for the three and nine months
ended September 30, 1997, has not been allocated to a reporting
segment.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
September 30,
1998 1997
Revenues
Passenger - American Airlines, Inc. $3,871 $ 3,713
- American Eagle 304 262
Cargo 158 169
Other 250 233
4,583 4,377
Expenses
Wages, salaries and benefits 1,446 1,380
Aircraft fuel 400 466
Commissions to agents 311 332
Depreciation and amortization 265 259
Maintenance, materials and repairs 250 224
Other operating expenses 1,286 1,207
Total operating expenses 3,958 3,868
Operating Income 625 509
Other Expense (29) (66)
Earnings Before Income Taxes $ 596 $ 443
Average number of equivalent employees 93,100 91,900
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RESULTS OF OPERATIONS (continued)
OPERATING STATISTICS
Three Months Ended
September 30,
1998 1997
American Airlines Jet Operations
Revenue passenger miles (millions) 29,132 28,500
Available seat miles (millions) 39,806 39,378
Cargo ton miles (millions) 480 506
Passenger load factor 73.2% 72.4%
Breakeven load factor 60.2% 61.2%
Passenger revenue yield per
passenger mile (cents) 13.29 13.03
Passenger revenue per available
seat mile (cents) 9.73 9.43
Cargo revenue yield per ton mile (cents) 32.61 33.05
Operating expenses per available
seat mile (cents) 9.22 9.14
Fuel consumption (gallons, in millions) 728 712
Fuel price per gallon (cents) 53.1 63.5
Fuel price per gallon, excluding
fuel taxes (cents) 48.4 58.5
Operating aircraft at period-end 645 642
American Eagle
Revenue passenger miles (millions) 753 670
Available seat miles (millions) 1,156 1,070
Passenger load factor 65.1% 62.6%
Operating aircraft at period-end 207 196
Operating aircraft at September 30, 1998, included:
American Airlines Aircraft: American Eagle Aircraft:
Airbus A300-600R 35 ATR 42 36
Boeing 727-200 78 Embraer 145 14
Boeing 757-200 93 Super ATR 43
Boeing 767-200 8 Saab 340B 90
Boeing 767-200 Extended 22 Saab 340B Plus 24
Range
Boeing 767-300 Extended 45 Total 207
Range
Fokker 100 75
McDonnell Douglas DC-10-10 13
McDonnell Douglas DC-10-30 5
McDonnell Douglas MD-11 11
McDonnell Douglas MD-80 260
Total 645
87.9% 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 10.6 years for American's aircraft and 5.47
years for American Eagle aircraft.
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RESULTS OF OPERATIONS (continued)
The Airline Group's revenues increased $206 million, or 4.7 percent,
in the third quarter of 1998 versus the same period last year.
American's passenger revenues increased by 4.3 percent, or $158
million, primarily as a result of strong demand for air travel driven
by continued economic growth in the U.S. and Europe and a healthy
pricing environment. American's yield (the average amount one
passenger pays to fly one mile) of 13.29 cents increased by 2.0
percent compared to the same period in 1997. Domestic yields
increased 5.8 percent from the third quarter of 1997. International
yields decreased 5.7 percent, primarily due to a 12.5 percent
decrease in the Pacific, a 6.7 percent decrease in Latin America and
a 3.1 percent decrease in Europe. The decrease in Pacific yields was
primarily due to the weakness in Asian economies and increased
industry capacity, the decrease in Latin America was due primarily to
an increase in industry capacity in Central and South America and a
decline in economic conditions, and the decrease in Europe was
partially attributable to the addition of new routes during the third
quarter of 1998.
American's traffic or revenue passenger miles (RPMs) increased 2.2
percent to 29.1 billion miles for the quarter ended September 30,
1998. American's capacity or available seat miles (ASMs) increased
1.1 percent to 39.8 billion miles in the third quarter of 1998.
American's domestic traffic increased 0.6 percent despite capacity
decreases of 2.2 percent and international traffic grew 5.8 percent
on capacity increases of 8.7 percent. The increase in international
traffic was driven by a 24.5 percent increase in traffic to the
Pacific on capacity growth of 40.0 percent, a 5.2 percent increase in
traffic to Europe on capacity growth of 8.4 percent and a 3.9
increase in traffic to Latin America on capacity growth of 5.7
percent.
The Airline Group's operating expenses increased 2.3 percent, or $90
million. American's Jet Operations cost per ASM increased 0.9
percent to 9.22 cents. Wages, salaries and benefits increased 4.8
percent, or $66 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 14.2
percent, or $66 million, due to a 16.4 percent decrease in American's
average price per gallon, including taxes, partially offset by a 2.2
percent increase in American's fuel consumption. Commissions to
agents decreased 6.3 percent, or $21 million, despite a 4.3 percent
increase in passenger revenues, due to the continued benefit from the
commission rate reduction initiated during September 1997.
Maintenance, materials and repairs increased $26 million, or 11.6
percent, due primarily to higher engine maintenance at American's
maintenance bases as a result of the maturing of its fleet. Other
operating expenses increased by $79 million, or 6.5 percent,
primarily related to spending on the Company's Year 2000 compliance
program and higher costs, such as credit card fees, resulting from
higher passenger revenues.
Other Expense decreased 56.1 percent, or $37 million, due primarily
to a $23 million increase in capitalized interest on aircraft
purchase deposits and a decrease in interest expense of approximately
$12 million due to scheduled debt repayments.
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RESULTS OF OPERATIONS (continued)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
September 30,
1998 1997
Revenues $ 604 $ 457
Operating Expenses 506 368
Operating Income 98 89
Other Income 15 3
Earnings Before Income Taxes $ 113 $ 92
Average number of equivalent employees 11,700 8,600
Revenues
Revenues for The SABRE Group increased $147 million, or 32.2 percent.
Electronic travel distribution revenues increased approximately $32
million, or 10.4 percent, primarily due to growth in booking fees
resulting from an overall increase in the price per booking. Revenues
from information technology solutions increased approximately $115
million, or 77.9 percent, primarily due to the services performed
under the information technology services agreement with US Airways and
Year 2000 testing and compliance enhancements for certain AMR units.
Expenses
Operating expenses increased 37.5 percent, or $138 million, due
primarily to increases in salaries, benefits and employee related
costs, subscriber incentives, depreciation and amortization expense
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. The increase in depreciation and
amortization expense is primarily due to the acquisition of
information technology assets to support the US Airways' contract and
normal additions. Other operating expenses increased primarily due to
equipment maintenance costs and other software development expenses
related to The SABRE Group's Year 2000 compliance program.
Other Income
Other income increased $12 million due primarily to a favorable court
judgement relating to Ticketnet Corporation, an inactive subsidiary of
The SABRE Group.
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RESULTS OF OPERATIONS (continued)
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
September 30,
1998 1997
Revenues $ 152 $ 151
Less: Revenues from Discontinued Operations (121) (125)
Revenues from Continuing Operations 31 26
Operating Expenses 140 138
Less: Expenses from Discontinued Operations (118) (121)
Operating Expenses from Continuing Operations 22 17
Operating Income from Continuing Operations 9 9
Other Income from Continuing Operations 2 7
Earnings From Continuing Operations
Before Income Taxes $ 11 $ 16
Average number of equivalent employees 13,100 15,600
Revenues
Revenues for the Management Services Group increased 0.7 percent, or
$1 million. This increase in revenues was primarily the result of
increased airline passenger, ramp and cargo handling services
provided by AMR Services and higher revenues for AMR Combs due to
higher aircraft sales. This increase was substantially offset by the
sale of Data Management Services in September 1997 and decreased
services provided by TeleService Resources and AMR Global Logistics.
Expenses
Operating expenses for the Management Services Group increased $2
million, or 1.4 percent. This increase in expenses was the result of
an increase in other operating expenses commensurate with the
increase in revenues for AMR Services and AMR Combs, partially offset
by a decrease in expenses associated with the sale of Data Management
Services in September 1997 and decreased services provided by
TeleService Resources and AMR Global Logistics.
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RESULTS OF OPERATIONS (continued)
For the Nine Months Ended September 30, 1998 and 1997
Summary AMR recorded income from continuing operations for the nine
months ended September 30, 1998 of $1.1 billion, or $6.34 per common
share diluted. This compares with income from continuing operations
of $765 million, or $4.16 per common share diluted, for the same
period in 1997. AMR's operating income of $2.0 billion increased
31.2 percent, or $477 million, compared to $1.5 billion for the same
period in 1997.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Nine Months Ended
September 30,
1998 1997
Revenues
Passenger - American Airlines, Inc. $11,238 $ 10,744
- American Eagle 849 766
Cargo 490 507
Other 720 658
13,297 12,675
Expenses
Wages, salaries and benefits 4,277 4,059
Aircraft fuel 1,219 1,457
Commissions to agents 934 975
Depreciation and amortization 781 781
Maintenance, materials and repairs 702 632
Other operating expenses 3,728 3,558
Total operating expenses 11,641 11,462
Operating Income 1,656 1,213
Other Expense (131) (223)
Earnings Before Income Taxes $ 1,525 $ 990
Average number of equivalent employees 91,900 90,800
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RESULTS OF OPERATIONS (continued)
OPERATING STATISTICS
Nine Months Ended
September 30,
1998 1997
American Airlines Jet Operations
Revenue passenger miles (millions) 82,443 81,113
Available seat miles (millions) 116,476 115,636
Cargo ton miles (millions) 1,485 1,507
Passenger load factor 70.8% 70.1%
Breakeven load factor 59.2% 61.3%
Passenger revenue yield per
passenger mile (cents) 13.63 13.25
Passenger revenue per available
seat mile (cents) 9.65 9.29
Cargo revenue yield per ton mile (cents) 32.64 33.22
Operating expenses per available
seat mile (cents) 9.27 9.23
Fuel consumption (gallons, in millions) 2,120 2,082
Fuel price per gallon (cents) 55.6 67.7
Fuel price per gallon, excluding
fuel taxes (cents) 50.8 62.8
Operating aircraft at period-end 645 642
American Eagle
Revenue passenger miles (millions) 2,076 1,924
Available seat miles (millions) 3,326 3,160
Passenger load factor 62.4% 60.9%
Operating aircraft at period-end 207 196
-14-
17
RESULTS OF OPERATIONS (continued)
The Airline Group's revenues increased $622 million, or 4.9 percent,
during the first nine months of 1998 versus the same period last
year. American's passenger revenues increased by 4.6 percent, or
$494 million, primarily as a result of strong demand for air travel
driven by continued economic growth in the U.S. and Europe and a
healthy pricing environment. American's yield (the average amount
one passenger pays to fly one mile) of 13.63 cents increased by 2.9
percent compared to the same period in 1997. Domestic yields
increased 5.6 percent from the first nine months of 1997.
International yields decreased 2.8 percent, reflecting an 8.2 percent
decrease in the Pacific and a 4.4 percent decrease in Latin America.
The decrease in Pacific yields was primarily due to the weakness in
Asian economies and increased industry capacity while the decrease in
Latin America was due primarily to an increase in industry capacity
in Central and South America and a decline in economic conditions.
American's traffic or revenue passenger miles (RPMs) increased 1.6
percent to 82.4 billion miles for the nine months ended September 30,
1998. American's capacity or available seat miles (ASMs) increased
0.7 percent to 116.5 billion miles in the first nine months of 1998.
American's domestic traffic increased 0.4 percent on a capacity
decrease of 1.6 percent and international traffic grew 4.6 percent on
capacity increases of 6.1 percent. The increase in international
traffic was driven by a 16.4 percent increase in traffic to the
Pacific on capacity growth of 23.1 percent, a 6.1 percent increase in
traffic to Latin America on growth of 8.6 percent and a 1.2 percent
increase in traffic on capacity growth of 0.4 percent in Europe.
American's yield and traffic were both negatively impacted in 1997 by
the effects of the pilot contract negotiations throughout the first
three months of 1997. During the first nine months of 1998,
American's yield and traffic were adversely impacted by the
imposition of the transportation tax for the entire period compared
to slightly less than seven months during the same period in 1997.
The Airline Group's other revenues increased $62 million, or 9.4
percent, primarily as a result of an increase in aircraft maintenance
work performed by American for other airlines and increased
administrative and employee travel service charges and service
contracts.
The Airline Group's operating expenses increased 1.6 percent, or $179
million. American's Jet Operations cost per ASM increased by 0.4
percent to 9.27 cents. Wages, salaries and benefits increased $218
million, or 5.4 percent, 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 16.3
percent, or $238 million, due to a 17.9 percent decrease in
American's average price per gallon, including taxes, partially
offset by a 1.8 percent increase in American's fuel consumption.
Commissions to agents decreased 4.2 percent, or $41 million, despite
a 4.6 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 $70
million, or 11.1 percent, due primarily to higher airframe and engine
maintenance at American's maintenance bases as a result of the
maturing of its fleet. Other operating expenses increased by $170
million, or 4.8 percent, primarily related to spending on the
Company's Year 2000 compliance program and higher costs, such as
credit card fees, resulting from higher passenger revenues.
Other Expense decreased 41.3 percent, or $92 million, due primarily
to a $61 million increase in capitalized interest on aircraft
purchase deposits and a decrease in interest expense of approximately
$30 million due to scheduled debt repayments.
-15-
18
RESULTS OF OPERATIONS (continued)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Nine Months Ended
September 30,
1998 1997
Revenues $1,735 $1,346
Operating Expenses 1,413 1,054
Operating Income 322 292
Other Income 18 5
Earnings Before Income Taxes $ 340 $ 297
Average number of equivalent employees 13,000 8,400
Revenues
Revenues for The SABRE Group increased $389 million, or 28.9 percent.
Electronic travel distribution revenues increased approximately $95
million, or 10.2 percent, primarily due to growth in booking fees
resulting from an overall increase in the price per booking. In
addition, the nine months ended September 30, 1998 includes approximately
$21 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 $294 million,
or 69.9 percent, primarily due to the services performed under the
information technology services agreement with US Airways and Year 2000
testing and compliance enhancements for certain AMR units and Canadian
Airlines International Limited.
Expenses
Operating expenses increased 34.1 percent, or $359 million, due
primarily to increases in salaries, benefits and employee related
costs, subscriber incentive expenses, depreciation and amortization
expense 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. The increase in depreciation
and amortization expense is primarily due to the acquisition of
information technology assets to support the US Airways' contract and
normal additions. Other operating expenses increased primarily due to
equipment maintenance costs and other software development expenses
related to The SABRE Group's Year 2000 compliance program.
Other Income
Other income increased $13 million due primarily to a favorable court
judgement relating to Ticketnet Corporation, an inactive subsidiary of
The SABRE Group.
-16-
19
RESULTS OF OPERATIONS (continued)
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Nine Months Ended
September 30,
1998 1997
Revenues $ 460 $ 463
Less: Revenues from Discontinued Operations (374) (390)
Revenues from Continuing Operations 86 73
Operating Expenses 419 418
Less: Expenses from Discontinued Operations (359) (367)
Operating Expenses from Continuing Operations 60 51
Operating Income from Continuing Operations 26 22
Other Income from Continuing Operations 4 7
Earnings from Continuing Operations
Before Income Taxes $ 30 $ 29
Average number of equivalent employees 11,200 15,500
Revenues
Revenues for the Management Services Group decreased 0.6 percent, or
$3 million. This decrease in revenues was primarily the result of
the sale of Data Management Services in September 1997 and decreased
services provided by TeleService Resources and AMR Global Logistics.
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 increased 0.2 percent, or $1 million, primarily
due to an increase in other operating expenses commensurate with the
increase in revenues for AMR Combs and AMR Services. This increase
was substantially offset by a decrease in expenses associated with
the sale of Data Management Services in September 1997 and decreased
services provided by TeleService Resources and AMR Global Logistics.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the nine month period
ended September 30, 1998 was $2.6 billion, an increase of $207
million over the same period in 1997. This increase resulted
primarily from increased net earnings. Capital expenditures for the
first nine months of 1998 were approximately $2.0 billion, and
included purchase deposits on new aircraft orders, the acquisition of
four Boeing 767-300ERs, three Boeing 757-200s, 14 Embraer EMB-145s
and five ATR 72 aircraft and purchases of computer-related equipment.
These capital expenditures were funded primarily with internally
generated cash, except for the Embraer aircraft acquisitions which
were funded through secured debt agreements. During the first nine
months of 1998, The SABRE Group invested approximately $140 million
for a 35 percent interest in ABACUS. Proceeds from the sale of
equipment and property of $206 million for the first nine months of
1998 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 and other
aircraft equipment sales.
-17-
20
LIQUIDITY AND CAPITAL RESOURCES (continued)
During 1998, the Company exercised its purchase rights to acquire
25 Boeing 737-800s, 23 Boeing 777-200IGWs and eight Embraer EMB-145s.
In addition, during the third quarter, AMR Eagle entered into an
agreement to acquire 75 Embraer EMB-135 aircraft, with deliveries
beginning in July 1999 and continuing through 2005. As of November 16,
1998, the Company had commitments to acquire the following
aircraft: 100 Boeing 737-800s, 34 Boeing 777-200IGWs, seven Boeing
757-200s, four Boeing 767-300ERs, 75 Embraer EMB-135s, 34 Embraer EMB-
145s and 25 Bombardier CRJ-700s. Deliveries of these aircraft will
occur during the remainder of 1998 and will continue through 2005.
Payments for these aircraft will approximate $210 million during the
remainder of 1998, $2.6 billion in 1999, $1.9 billion in 2000 and an
aggregate of approximately $3.0 billion in 2001 through 2005. The
exercise of these aircraft purchase rights will allow the Company to
continue the retirement of its Boeing 727-200 and McDonnell Douglas
DC-10 fleets, which the Company anticipates to be complete by 2004,
as well as to provide for modest growth. While the Company expects
to fund the majority of these capital expenditures from the Company's
existing cash balance and internally generated cash, some new
financing may be raised depending upon capital market conditions and
the Company's evolving view of its long-term needs.
During the nine months ended September 30, 1998, a total of
approximately 12.8 million shares of the Company's common stock were
purchased by the Company at a total cost of approximately $840
million. As of September 30, 1998, the Company had completed two
separate $500 million stock repurchase programs - one initiated in
1997 and one initiated in July 1998. On October 21, 1998, the
Company's board of directors authorized management to repurchase up to
an additional $500 million of the Company's outstanding common stock.
Share repurchases may be made from time to time, depending on market
conditions, and may be discontinued at any time.
In 1997, The SABRE Group's Board of Directors authorized, subject
to certain business and market conditions, the repurchase of up to
1.5 million shares of The SABRE Group's Class A Common Stock. During
the nine months ended September 30, 1998, a total of approximately
1.4 million shares were purchased by The SABRE Group at a total cost
of approximately $49 million.
YEAR 2000 COMPLIANCE
The Company has implemented a Year 2000 compliance program designed
to ensure that the Company's computer systems and applications and
its embedded operating systems 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. Substantially all of the Company's
core systems are either completed or in the final testing phases of
the Year 2000 project. The Company expects its Year 2000 project to
be substantially completed in the first quarter of 1999 and believes
that it has allocated adequate resources to meet this goal. 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 Year 2000 compliant 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. The Company is currently evaluating responses from and
addressing issues with significant vendors to determine the extent to
which the Company's systems are vulnerable to those third parties
which fail to remedy their own Year 2000 issues. The Company is
developing contingency plans designed to enable it to continue
operations, even in the event of certain third party failures, to the
extent that such operations can be conducted safely.
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 $152 million was incurred as of September 30, 1998.
The Company expects to have incurred most of the expenses related to
its Year 2000 compliance program by the end 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
are expensed as incurred and are funded through cash from operations.
-18-
21
YEAR 2000 COMPLIANCE (continued)
The expected costs and completion dates for the Year 2000 project
are forward-looking statements based on management's best estimates,
which were derived utilizing numerous assumptions of future events
including the continued availability of resources, third party
modification plans and other factors. Actual results could differ
materially from these estimates as a result of factors such as the
availability and cost of trained personnel, the ability to locate and
correct all relevant computer codes and similar uncertainties.
NEW EUROPEAN CURRENCY
In January 1999, certain European countries are scheduled to
introduce a new currency unit called the "euro". The Company has
implemented a project intended to ensure that software systems
operated by the Company's businesses as well as software licensed to
or operated for third parties by The SABRE Group are designed to
properly handle the euro. The Company expects its euro project to be
substantially completed by the fourth quarter of 1998 and believes
that it has allocated adequate resources to meet this goal. The
Company estimates that the introduction of the euro, including the
total cost for the euro project, will not have a material effect on
the Company's business, financial condition, or results of
operations. Costs associated with the euro project will be expensed
as incurred and will be funded through cash from operations.
Statements related to the Company's euro project are forward-looking
statements that are based on management's best estimates. Actual
results could differ materially from these estimates.
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. Congress enacted the Wright
Amendment to prevent the federal government from acting inconsistent
with this agreement. 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 some 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 Dallas has an obligation to do so.
American has joined in this litigation. In the same lawsuit, DFW
filed claims alleging that irrespective of whether the Bond Ordinance
is enforceable, the DFW Use Agreement prohibits American and other DFW
signatory airlines from moving any interstate operations to Love
Field. 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
May 1998, Continental Airlines and Continental Express filed a lawsuit
in federal court seeking a judicial declaration that the Bond
Ordinance cannot be enforced to prevent them from operating flights
from Love Field to Cleveland using regional jets. In August 1998, the
Department of Transportation (DOT) initiated its own proceeding
intending to address federal law questions concerning the Bond
Ordinance, local proprietary powers, DFW's Use Agreement with DFW
carriers such as American, and the Wright and 1997 Amendments.
As a result of the foregoing, the future of interstate flight
operations at Love Field and American's DFW hub are uncertain. An
increase in operations at Love Field to new interstate destinations
could adversely impact American's business.
Recently, American initiated limited intrastate service to Austin
from Love Field.
-19-
22
OTHER INFORMATION
During the fourth quarter of 1998, the Company announced that it will
reduce its planned growth for 1999 by retiring an additional eight
McDonnell Douglas DC-10-10 and two additional Boeing 727-200 aircraft
earlier than anticipated, for a total of 16 jet aircraft to be
retired in 1999. The 10 incremental aircraft retirements will save
the Company approximately $40 million during the next three years in
aircraft maintenance and modification costs.
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 the competitive practices of major
carriers at major hub airports, including American's practices at
DFW. Also, in April 1998, DOT issued proposed pricing and capacity
rules that would severely limit major carriers' ability to compete
with new entrant carriers. The outcomes of the proposed legislation,
the investigations and the proposed DOT rules 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
In June 1997, 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.
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use", effective for fiscal years beginning after December 15, 1998.
The adoption of SOP 98-1 is not expected to have a material impact on
the Company's financial position or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), which is required to be adopted in years
beginning after June 15, 1999. SFAS 133 permits early adoption as of
the beginning of any fiscal quarter after its issuance. SFAS 133
will require the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings
or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings. The
Company is currently evaluating the impact of SFAS 133; however,
based on current market conditions, SFAS 133 is not expected to have
a material impact on the Company's financial condition or results of
operations.
-20-
23
FORWARD-LOOKING INFORMATION
Statements in this report contain various forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs
concerning future events. When used in this report, the words
"expects," "plans," "anticipates," and similar expressions are
intended to identify forward-looking statements. All forward-looking
statements in this report are based upon information available to the
Company on the date of this report. The Company undertakes no
obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
Forward-looking statements are subject to a number of factors that
could cause actual results to differ materially from our expectations.
Additional information concerning these and other factors is contained
in the Company's Securities and Exchange Commission filings, included
but not limited to the Form 10-K/A No. 1 for the year ended December
31, 1997.
-21-
24
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. On June 23, 1998, the Court
certified the case as a class action although to date no notice has
been sent to the class. The class consists of all members who earned
miles between January 1, 1992 (the date the change was announced) and
February 1, 1995 (the date the change was made). On July 13, 1998,
the Court denied American's motion for summary judgment as to the
claims brought by plaintiff Steven Gutterman. On July 30, 1998, the
plaintiffs filed a motion for summary judgment as to liability.
American is vigorously defending the lawsuit.
A federal grand jury in Miami 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 has been served with two subpoenas 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 subpoenas and intends to cooperate fully
with the government's investigation.
On August 7, 1998, a purported class action was filed against
American Airlines in state court in Travis County, Texas (Boon Ins.
Agency v. American Airlines, Inc., et al.) claiming that the $75
reissuance fee for changes to non-refundable tickets is an
unenforceable liquidated damages clause and seeking a refund of the
fee on behalf of all passengers who paid it, as well as interest and
attorneys' fees. On September 23, 1998, Continental, Delta and
America West were added as defendants to the lawsuit. To date, no
discovery has been taken and no class has been certified. American
intends to vigorously defend this lawsuit.
-22-
25
PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
10.1 AMR Corporation 1998 Long-Term Incentive Plan, As Amended
27.1 Financial Data Schedule as of
September 30, 1998.
27.2 Restated Financial Data Schedule as of
September 30, 1997.
On July 15, 1998, AMR filed a report on Form 8-K relative to a press
release issued to report the Company's second quarter 1998 earnings
and to announce that the Company's board of directors authorized
management to repurchase additional shares of the Company's
outstanding common stock.
On October 22, 1998, AMR filed a report on Form 8-K relative to a
press release issued to report the Company's third quarter 1998
earnings and to announce that the Company's board of directors
authorized management to repurchase additional shares of the
Company's outstanding common stock.
-23-
26
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: November 16, 1998 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President and Chief
Financial Officer
-24-
5
1,000,000
9-MOS
DEC-31-1998
SEP-30-1998
72
2,180
1,764
32
609
5,189
22,454
8,419
22,194
5,949
3,972
0
0
182
6,378
22,194
0
14,604
0
12,600
0
0
280
1,858
734
1,124
8
0
0
1,132
6.62
6.39
5
1,000,000
9-MOS
DEC-31-1997
SEP-30-1997
23
2,891
1,494
16
622
5,622
20,411
7,595
21,288
6,196
4,156
0
0
182
5,808
21,288
0
13,643
0
12,116
0
0
310
1,284
519
765
12
0
0
777
4.31
4.22
