1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999.
[ ]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 - 153,557,877 as of May 1, 1999.
2
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three months ended March
31, 1999 and 1998
Condensed Consolidated Balance Sheets -- March 31, 1999 and
December 31, 1998
Condensed Consolidated Statements of Cash Flows -- Three months
ended March 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements -- March 31,
1999
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 5. Other Information
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 Ended
March 31,
1999 1998
Revenues
Airline Group:
Passenger - American Airlines, Inc. $ 3,320 $ 3,578
- AMR Eagle 271 256
Cargo 145 163
Other 255 232
3,991 4,229
Sabre 638 554
Other 20 17
Less: Intersegment revenues (166) (166)
Total operating revenues 4,483 4,634
Expenses
Wages, salaries and benefits 1,665 1,559
Aircraft fuel 349 415
Depreciation and amortization 316 318
Commissions to agents 288 301
Maintenance, materials and repairs 257 230
Other rentals and landing fees 240 213
Food service 167 164
Aircraft rentals 160 142
Other operating expenses 883 744
Total operating expenses 4,325 4,086
Operating Income 158 548
Other Income (Expense)
Interest income 25 34
Interest expense (92) (97)
Interest capitalized 33 18
Minority interest (16) (13)
Miscellaneous - net 65 (13)
15 (71)
Income from Continuing Operations
(net of applicable income taxes) 173 477
Income tax provision 79 192
Income from Continuing Operations 94 285
Income from Discontinued Operations
(net of applicable income taxes) - 5
Gain on Sale of Discontinued Operations
(net of applicable income taxes) 64 -
Net Earnings $ 158 $ 290
Continued on next page.
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AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Unaudited) (In millions, except per share amounts)
Three Months Ended
March 31,
1999 1998
Earnings Per Common Share
Basic
Income from Continuing Operations $ 0.59 $ 1.65
Discontinued Operations 0.40 0.03
Net Earnings $ 0.99 $ 1.68
Diluted
Income from Continuing operations $ 0.57 $ 1.59
Discontinued Operations 0.39 0.03
Net Earnings $ 0.96 $ 1.62
Number of Shares Used in
Computation
Basic 159 173
Diluted 164 179
The accompanying notes are an integral part of these financial
statements.
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AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
March 31, December 31,
1999 1998
(Note 1)
Assets
Current Assets
Cash $ 62 $ 95
Short-term investments 1,121 1,978
Receivables, net 1,704 1,543
Inventories, net 639 596
Deferred income taxes 476 476
Other current assets 238 187
Total current assets 4,240 4,875
Equipment and Property
Flight equipment, net 9,565 8,712
Other equipment and property, net 1,903 1,903
Purchase deposits for flight equipment 1,465 1,624
12,933 12,239
Equipment and Property Under Capital Leases
Flight equipment, net 1,990 1,981
Other equipment and property, net 166 166
2,156 2,147
Route acquisition costs, net 909 916
Other assets, net 1,986 2,126
$ 22,224 $22,303
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,233 $ 1,152
Accrued liabilities 1,886 2,122
Air traffic liability 2,442 2,163
Current maturities of long-term debt 247 48
Current obligations under capital leases 165 154
Total current liabilities 5,973 5,639
Long-term debt, less current maturities 2,311 2,436
Obligations under capital leases,less
current obligations 1,712 1,764
Deferred income taxes 1,531 1,491
Other liabilities, deferred gains, deferred
credits and postretirement benefits 4,239 4,275
Stockholders' Equity
Common stock 182 182
Additional paid-in capital 3,070 3,075
Treasury stock (1,681) (1,288)
Accumulated other comprehensive income (4) (4)
Retained earnings 4,891 4,733
6,458 6,698
$ 22,224 $22,303
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)
Three Months Ended
March 31,
1999 1998
Net Cash Provided by Operating Activities $ 178 $ 500
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (1,008) (505)
Net decrease in short-term investments 861 313
Acquisitions and other investments (55) (139)
Proceeds from sale of other investments 66 -
Proceeds from sale of equipment and property 19 90
Net cash used for investing activities (117) (241)
Cash Flow from Financing Activities:
Repurchase of common stock (407) (164)
Payments on long-term debt and capital
lease obligations (89) (93)
Proceeds from:
Sale of discontinued operations 259 -
Issuance of long-term debt 83 -
Sale-leaseback transactions 54 -
Exercise of stock options 6 58
Net cash used for financing activities (94) (199)
Net increase (decrease) in cash (33) 60
Cash at beginning of period 95 62
Cash at end of period $ 62 $ 122
Cash Payments For:
Interest $ 72 $ 96
Income taxes 16 27
Financing Activities Not Affecting Cash:
Capital lease obligations incurred $ 54 $ -
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, 1998 has been
derived from the audited financial statements at that date. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the AMR Corporation (AMR or the
Company) Annual Report on Form 10-K for the year ended December 31,
1998. Certain amounts from 1998 have been reclassified to conform
with the 1999 presentation.
2.Accumulated depreciation of owned equipment and property at March
31, 1999 and December 31, 1998, was $7.5 billion and $7.3 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at March 31, 1999 and December 31, 1998, was
$1.3 billion.
Effective January 1, 1999, in order to more accurately reflect the
expected useful life of its aircraft, the Company changed its
estimate of the depreciable lives of certain aircraft types from 20
to 25 years and increased the residual value from five to 10
percent. As a result of this change, depreciation and amortization
expense was reduced by approximately $40 million, and net earnings
was increased by approximately $25 million, or $0.15 per common
share diluted, for the three months ended March 31, 1999.
3.As discussed in the notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, 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), a wholly-owned subsidiary of
the Company, through increased landing fees and/or other charges.
4.In April 1999, the Company exercised its purchase rights to
acquire three Boeing 737-800s. The exercise of these aircraft
purchase rights will allow the Company to replace three aircraft from
the Reno Air (Reno) fleet that will not be permanently integrated into
American's fleet. In addition, the Company is continuing to analyze
which, if any, of the remaining Reno aircraft will be replaced by
additional aircraft orders or if the aircraft will undergo
modifications or enhancements to make them consistent with American's
fleet. As of April 30, 1999, the Company had commitments to acquire
the following aircraft: 96 Boeing 737-800s, 28 Boeing 777-200IGWs,
one Boeing 767-300ER, one Boeing 757-200, 95 Embraer EMB-135s, 21
Embraer EMB-145s and 25 Bombardier CRJ-700s. Deliveries of these
aircraft commence in 1999 and will continue through 2006. Payments
for these aircraft will approximate $1.8 billion during the remainder
of 1999, $2.1 billion in 2000, $1.8 billion in 2001 and an aggregate
of approximately $1.5 billion in 2002 through 2006.
Also in April 1999, the Company announced that it will accelerate
the retirement of nine McDonnell Douglas DC-10 and 16 Boeing 727-
200 aircraft earlier than anticipated, thereby eliminating
American's entire DC-10 fleet by the end of 2000 and advancing the
retirement of the Boeing 727 fleet to the end of 2003.
5.In early February 1999, some members of the Allied Pilots
Association (APA) engaged in certain activities (increased sick
time and declining to fly additional trips) that resulted in
numerous cancellations across American's system. These actions
were taken in response to the acquisition of Reno in December 1998.
In an attempt to resolve the dispute, the Company and the APA have
agreed to non-binding mediation. These actions adversely impacted
the Company's first quarter 1999 net earnings.
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6.In connection with a secondary offering by Equant N.V. in
February 1999, the Company sold approximately 923,000 depository
certificates for proceeds of $66 million. The Company recorded a pre-
tax gain of $66 million as a result of this transaction.
7.During the first quarter of 1999, the Company completed the sales
of AMR Services, AMR Combs and TeleService Resources. As a result
of these sales, the Company recorded a gain of approximately $64
million, net of income taxes of approximately $19 million.
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 $3.6 million for the
three months ended March 31, 1998. Revenues from the operations of
AMR Services, AMR Combs and TeleService Resources were $97 million
and $133 million for the three months ended March 31, 1999 and
1998, respectively.
8.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,
1999 1998
Numerator:
Income from continuing operations -
numerator for basic and diluted
earnings per share $ 94 $ 285
Denominator:
Denominator for basic earnings per
share - weighted-average shares 159 173
Effect of dilutive securities:
Employee options and shares 12 14
Assumed treasury shares purchased (7) (8)
Dilutive potential common shares 5 6
Denominator for diluted earnings per
share - adjusted weighted-average shares 164 179
Basic earnings per share from
continuing operations $ 0.59 $ 1.65
Diluted earnings per share from
continuing operations $ 0.57 $ 1.59
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
9.AMR's operations fall within two lines of business: the Airline
Group and Sabre. The Airline Group consists primarily of American,
one of the largest scheduled passenger airlines and air freight
carriers in the world, and AMR Eagle Holding Corporation (AMR
Eagle), a separate subsidiary of AMR. At March 31, 1999, AMR Eagle
owns three regional airlines which operate as "American Eagle", and
provides connecting service to American. Sabre provides electronic
distribution of travel through its Sabre computer reservations
system and information technology solutions to the travel and
transportation industries.
Selected financial information by reportable segment is as follows
(in millions):
Airline
Group Sabre Total
Three months ended March 31,1999
Revenues from external customers $3,980 $486 $4,466
Intersegment revenues 11 152 163
Operating income 37 112 149
Three months ended March 31,1998
Revenues from external customers $4,219 $403 $4,622
Intersegment revenues 10 151 161
Operating income 427 115 542
The following table provides a reconciliation of reportable
segment revenues and operating income to the Company's
consolidated financial statement totals (in millions):
Three Months Ended March 31,
1999 1998
Revenues
Total external revenues for
reportable segments $ 4,466 $ 4,622
Intersegment revenues for
reportable segments 163 161
Other revenues 20 17
Elimination of intersegment revenues (166) (166)
Total consolidated revenues $ 4,483 $ 4,634
Operating income
Total operating income for
reportable segments $ 149 $ 542
Other operating income 9 6
Total consolidated operating income $ 158 $ 548
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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, 1999 and 1998
Summary AMR recorded net earnings for the three months ended March
31, 1999 of $158 million, or $0.96 per common share diluted. This
compares to net earnings of $290 million, or $1.62 per common share
diluted for the first quarter of 1998. AMR's operating income of
$158 million decreased 71.2 percent, or $390 million, compared to
$548 million for the same period in 1998. AMR's net earnings were
adversely impacted by an illegal job action by members of the APA
during the first quarter of 1999, which negatively impacted the
Company's net earnings by an estimated $140 million, or $0.85 per
common share diluted. This was partially offset by the gain on the
sale of AMR Services, AMR Combs and TeleService Resources, and the
gain from the sale of the Equant N.V. depository certificates,
aggregating approximately $101 million after taxes, or $0.62 per
common share diluted.
The following sections provide a discussion of AMR's results by
reporting segment, which are described in Footnote 9 and in AMR's
Annual Report on Form 10-K for the year ended December 31, 1998.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
March 31,
1999 1998
Revenues
Passenger - American Airlines, Inc. $3,320 $ 3,578
- AMR Eagle 271 256
Cargo 145 163
Other 255 232
3,991 4,229
Expenses
Wages, salaries and benefits 1,462 1,384
Aircraft fuel 349 415
Commissions to agents 288 301
Maintenance, materials and repairs 257 229
Depreciation and amortization 253 258
Other rentals and landing fees 228 204
Food service 167 164
Aircraft rentals 160 142
Other operating expenses 790 705
Total operating expenses 3,954 3,802
Operating Income 37 427
Other Expense (6) (62)
Earnings Before Income Taxes $ 31 $ 365
Average number of equivalent employees 94,100 91,000
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RESULTS OF OPERATIONS (continued)
OPERATING STATISTICS
Three Months Ended
March 31,
1999 1998
American Airlines Jet Operations
Revenue passenger miles (millions) 25,290 25,388
Available seat miles (millions) 37,703 37,707
Cargo ton miles (millions) 431 496
Passenger load factor 67.1% 67.3%
Breakeven load factor 66.4% 58.3%
Passenger revenue yield per
passenger mile (cents) 13.13 14.09
Passenger revenue per available
seat mile (cents) 8.81 9.49
Cargo revenue yield per ton mile (cents) 33.18 32.55
Operating expenses per available
seat mile (cents) 9.63 9.35
Fuel consumption (gallons, in millions) 687 681
Fuel price per gallon (cents) 48.9 58.9
Fuel price per gallon, excluding
fuel taxes (cents) 44.6 53.9
Operating aircraft at period-end 683 639
AMR Eagle
Revenue passenger miles (millions) 706 615
Available seat miles (millions) 1,211 1,071
Passenger load factor 58.3% 57.4%
Operating aircraft at period-end 256 202
Operating aircraft at March 31, 1999, included:
American Airlines AMR Eagle Aircraft:
Aircraft:
Airbus A300-600R 35 ATR 42 35
Boeing 727-200 76 Embraer 145 27
Boeing 737-800 5 Super ATR 43
Boeing 757-200 100 Saab 340A 21
Boeing 767-200 8 Saab 340B 105
Boeing 767-200 Extended Saab 340B Plus 25
Range 22
Boeing 767-300 Extended Total 256
Range 46
Boeing 777-200IGW 4
Fokker 100 75
McDonnell Douglas DC-10-10 11
McDonnell Douglas DC-10-30 5
McDonnell Douglas MD-11 11
McDonnell Douglas MD-80 280
McDonnell Douglas MD-90 5
Total 683
91% 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 10.7 years for American's aircraft and 6.2
years for AMR Eagle aircraft.
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RESULTS OF OPERATIONS (continued)
The Airline Group's revenues decreased $238 million, or 5.6 percent,
in the first quarter of 1999 versus the same period last year.
American's passenger revenues decreased by 7.2 percent, or $258
million, largely as a result of the illegal job action by members of
the APA during the first quarter of 1999. American's yield (the
average amount one passenger pays to fly one mile) of 13.13 cents
decreased by 6.8 percent compared to the same period in 1998.
Domestic yields decreased 5.5 percent from the first quarter of 1998.
International yields decreased 7.5 percent, primarily due to a
decrease of 19.5 percent, 11.0 percent and 6.8 percent in Pacific,
Latin American, and European yields, respectively. The decrease in
yield was due to the APA job action, and the continued effect of weak
international economies coupled with large industry capacity
additions.
American's traffic or revenue passenger miles (RPMs) decreased 0.4
percent to 25.3 billion miles for the quarter ended March 31, 1999.
The decrease in RPMs was due primarily to the APA job action, which
was substantially offset by additional capacity as a result of new
aircraft deliveries in the first quarter of 1999. American's
capacity or available seat miles (ASMs) of 37.7 billion miles was
flat compared to the first quarter of 1998. American's domestic
traffic decreased 0.1 percent on capacity decreases of 1.0 percent
and international traffic decreased 1.1 percent on capacity growth of
2.3 percent. The decrease in international traffic was driven by a
4.2 percent decrease in traffic to Latin America on a capacity
reduction of 5.5 percent and a 3.0 percent decrease in traffic to
Europe on capacity growth of 3.2 percent. This was partially offset
by a 36.6 percent increase in traffic to the Pacific on capacity
growth of 74.0 percent, primarily due to the addition of several new
routes.
Cargo revenue decreased 11.0 percent, or $18 million, due primarily
to the impact of the APA illegal job action.
The Airline Group's other revenues increased $23 million, or 9.9
percent, primarily as a result of an increase in aircraft maintenance
work performed by American for other airlines and increased service
contracts, primarily related to ramp and consulting services.
The Airline Group's operating expenses increased 4.0 percent, or $152
million. American's Jet Operations cost per ASM increased 3.0
percent to 9.63 cents. Wages, salaries and benefits increased 5.6
percent, or $78 million, primarily due to an increase in the average
number of equivalent employees and contractual wage rate and
seniority increases that are built into the Company's labor
contracts. Aircraft fuel expense decreased 15.9 percent, or $66
million, due to a 17.0 percent decrease in American's average price
per gallon, including taxes, partially offset by a 0.9 percent
increase in American's fuel consumption. Commissions to agents
decreased 4.3 percent, or $13 million, due primarily to the decrease
in passenger revenues and the benefit from the international
commission structure change implemented in late 1998. Maintenance,
materials and repairs expense increased $28 million, or 12.2 percent,
due primarily to maintenance associated with the addition of Reno
aircraft in December 1998 and the volume and timing of engine
maintenance at American's maintenance bases. Other rentals and
landing fees increased $24 million, or 11.8 percent, due to higher
facilities rent and landing fees across American's system. Aircraft
rentals increased $18 million, or 12.7 percent, due primarily to the
addition of Reno aircraft. Other operating expense increased $85
million, or 12.1 percent, due primarily to an increase in outsourced
services, booking fees, and travel and incidental costs.
Other Expense decreased 90.3 percent, or $56 million, due to an
increase in capitalized interest on aircraft purchase deposits and a
$31 million gain on the sale of a portion of American's interest in
Equant N.V.
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RESULTS OF OPERATIONS (continued)
SABRE
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
Three Months Ended
March 31,
1999 1998
Revenues $ 638 $ 554
Operating Expenses 526 439
Operating Income 112 115
Other Income 37 2
Earnings Before Income Taxes $ 149 $ 117
Average number of equivalent employees 12,200 10,700
Revenues
Revenues for Sabre increased 15.2 percent, or $84 million. Electronic
travel distribution revenues increased approximately $36 million, or
10.4 percent, due to growth in booking fees driven by an increase in
booking volumes and an overall increase in the average price per
booking. Revenues from information technology solutions increased
approximately $48 million, or 23.0 percent, primarily due to the
services performed under the information technology services agreement
with U.S. Airways, Inc. (US Airways).
Expenses
Operating expenses increased 19.8 percent, or $87 million, due
primarily to increases in salaries, benefits and employee-related
costs, subscriber incentive expense, 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 Sabre's business growth, and wage and
salary increase for existing employees. Subscriber incentive expense
increased in order to maintain and expand Sabre's travel agency
subscriber base. The increase in depreciation and amortization
expense is due to the acquisition of information technology assets to
support the US Airways' contract, normal additions, and the
amortization of the deferred asset associated with the stock options
granted to US Airways. These increases were partially offset by a
decrease in depreciation expense due to the sale of data center
mainframe equipment to an unrelated party in October 1998. Other
operating expenses increased partially due to increased data
processing costs.
Other Income
Other income increased $35 million in the first quarter of 1999 due
to a $35 million gain on the sale of Equant N.V. depository
certificates held by American for the economic benefit of Sabre.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the three-month period
ended March 31, 1999 was $178 million, a decrease of $322 million
over the same period in 1998. This decrease resulted primarily from
a decrease in net earnings and an increase in profit sharing payments
in the first quarter of 1999 as compared to the same period in 1998.
Capital expenditures for the first three months of 1999 were $1.0
billion, and included the acquisition of five Boeing 737-800s, four
Boeing 777-200IGWs, four Boeing 757-200s, one Boeing 767-300ER and
seven Embraer 145 aircraft, and computer-related equipment of
approximately $76 million. These capital expenditures were financed
with internally generated cash, except for the Embraer aircraft
acquisitions which were funded through secured debt agreements, and
one Boeing 757-200 aircraft which was financed through a sale-
leaseback transaction.
In April 1999, the Company exercised its purchase rights to
acquire three Boeing 737-800s. The exercise of these aircraft
purchase rights will allow the Company to replace three aircraft from
the Reno fleet that will not be permanently integrated into
American's fleet. In addition, the Company is continuing to analyze
which, if any, of the remaining Reno aircraft will be replaced by
additional aircraft orders or if the aircraft will undergo
modifications or enhancements to make them consistent with American's
fleet. As of April 30, 1999, the Company had commitments to acquire
the following aircraft: 96 Boeing 737-800s, 28 Boeing 777-200IGWs,
one Boeing 767-300ER, one Boeing 757-200, 95 Embraer EMB-135s, 21
Embraer EMB-145s and 25 Bombardier CRJ-700s. Deliveries of these
aircraft commence in 1999 and will continue through 2006. Payments
for these aircraft will approximate $1.8 billion during the remainder
of 1999, $2.1 billion in 2000, $1.8 billion in 2001 and an aggregate
of approximately $1.5 billion in 2002 through 2006. The Company
expects to fund its 1999 capital expenditures from the Company's
existing cash and short-term investments, internally generated cash,
and some new financing depending upon capital market conditions and
the Company's evolving view of its long-term needs.
Subsequent to March 31, 1999, the Company entered into six
aircraft mortgage agreements. As of May 12, 1999, the Company had
borrowed approximately $300 million under these agreements.
During the three months ended March 31, 1999, the Company purchased
approximately 6.9 million shares of its common stock at a cost of
approximately $405 million. As of March 31, 1999, the Company had
completed the $500 million share repurchase program initiated in
October 1998. On March 17, 1999, 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 March 1999, Sabre's Board of Directors authorized, subject to
certain business and market conditions, the repurchase of up to 1.0
million shares of Sabre's Class A Common Stock. During the three
months ended March 31, 1999, Sabre purchased approximately 50,000
shares at a cost of approximately $2 million.
In connection with a secondary offering by Equant N.V. in February
1999, the Company sold approximately 923,000 depository certificates
for proceeds of $66 million. As of March 31, 1999, the Company holds
approximately 2.3 million depository certificates which are subject to
a final reallocation between the owners of the certificates during
1999. Thus, the number of certificates owned by the Company is
subject to change.
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YEAR 2000 READINESS
State of Readiness In 1995, the Company implemented a project (the
Year 2000 Project) to ensure that hardware and software systems
operated by the Company, including software licensed to or operated
for third parties by Sabre, are designed to operate and properly
manage dates beyond December 31, 1999 (Year 2000 Readiness). The
Company has assessed (i) the Company's over 1,000 information
technology and operating systems that will be utilized after
December 31, 1999 (IT Systems); (ii) non-information technology
systems, including embedded technology, facilities, and other systems
(Non-IT Systems); and (iii) the Year 2000 Readiness of its critical
third party service providers. The Year 2000 Project consists of six
phases: (i) awareness, (ii) assessment, (iii) analysis, design and
remediation, (iv) testing and validation, (v) quality assurance review
(to ensure consistency throughout the Year 2000 Project) and
(vi) creation of business continuity strategy, including plans in the
event of Year 2000 failures. In developing the Company's proprietary
software analysis, remediation and testing methodology for Year 2000
Readiness, it studied the best practices of the Institute of
Electrical and Electronics Engineers and the British Standards
Institution.
IT Systems The Company has completed the first three phases of the
Year 2000 Project for all of its IT Systems. The Company has
completed the testing and validation phase and quality assurance
review phase for 94 percent of its IT Systems, including its computer
reservations and flight operating systems that perform such "mission
critical" functions as passenger bookings, ticketing, passenger check-
in, aircraft weight and balance, flight planning and baggage and cargo
processing. As of May 1, 1999, approximately 40 percent of the IT
Systems (including the computer reservations systems) are already
processing Year 2000 dates correctly.
Using dedicated testing environments and applying rigorous test
standards, the Company is actively testing its other IT Systems to
determine if they are Year 2000 ready or if further remediation is
necessary. The Company expects to complete the testing and validation
phase and quality assurance review phase for its remaining IT Systems,
and the upgrading of certain hardware and software that supports its
IT Systems by June 30, 1999.
Non-IT Systems The Company has substantially completed the testing
and validation phase of its critical Non-IT Systems, such as aircraft
avionics and flight simulators, and expects to complete the remainder
of the testing and validation phase and the quality assurance review
phase by June 30, 1999. In addition, the Company expects to complete
the quality assurance review phase for substantially all of its other
Non-IT Systems by June 30, 1999. The Company believes that its
business, financial condition, and results of operations would not be
materially adversely affected, and that it has adequate contingency
plans to ensure business continuity if its other Non-IT Systems are
not Year 2000 ready.
Third Party Services The Company relies on third party service
providers for many services, such as telecommunications, electrical
power, and data and credit card transaction processing. In addition,
the Company's business is dependent upon entities which supply
critical infrastructure to the airline industry, such as the air
traffic control and related systems of the Federal Aviation
Administration and international aviation authorities, the Department
of Transportation, and airport authorities. Those service providers
depend on their hardware and software systems and on interfaces with
the Company's IT Systems. The Company has polled its critical service
providers regarding their Year 2000 plans and state of readiness. The
Company has received responses from approximately 82 percent of its
critical service providers, other than providers of discretionary
services that will not materially adversely affect the Company's
business, financial condition, and results of operations. Most of the
respondees assured the Company that their software and hardware is or
will be Year 2000 ready. To the extent practical, the Company intends
to seek alternatives for third party service providers that have not
responded to their Year 2000 Readiness by June 30, 1999.
Costs of Year 2000 Project The Company expects to incur significant
hardware, software and labor costs, as well as consulting and other
expenses, in its Year 2000 Project. The Company's total estimated cost
of the project is $215 to $250 million, of which approximately
$194 million was incurred as of March 31, 1999. Costs associated with
the Year 2000 Project are expensed as incurred, other than capitalized
hardware costs, and have been funded through cash from operations.
-13-
16
Risks of Year 2000 Non-readiness The economy in general, and the
travel and transportation industries in particular, may be adversely
affected by risks associated with the Year 2000. The Company's
business, financial condition, and results of operations could be
materially adversely affected if systems that it operates or systems
that are operated by third party service providers upon which the
Company relies are not Year 2000 ready in time. There can be no
assurance that these systems will continue to properly function and
interface and will otherwise be Year 2000 ready. Management believes
that its most likely Year 2000 risks relate to the failure of third
parties with whom it has material relationships to be Year 2000 ready.
Business Continuity Plans To the extent practical, the Company is
identifying the most likely Year 2000 failures in an effort to develop
and refine plans to continue its business in the event of failures of
the Company's or third parties' systems to be Year 2000 ready. These
plans include performing certain processes manually; maintaining
dedicated staff to be available at crucial dates to remedy unforeseen
problems; installing defensive code to protect real-time systems from
improperly formatted date data supplied by third parties; repairing or
obtaining replacement systems; and reducing or suspending certain
aspects of the Company's services or operations. Because of the
pervasiveness and complexity of the Year 2000 issue, and in particular
the uncertainty concerning the efforts and success of third parties to
be Year 2000 ready, the Company will continue to refine its
contingency plans during 1999.
The costs of the project and the date on which the Company plans
to complete the Year 2000 Readiness 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, the failure of third parties to
be Year 2000 ready 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. 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 joined in this litigation. On October 15, 1998, the state
district court granted summary judgment in favor of Fort Worth and
American, which summary judgment is being appealed to the Fort Worth
Court of Appeals. 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. These claims remain
unresolved. 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 December 1998, the
Department of Transportation (DOT) issued an order on the 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, and concluded that the Bond Ordinance was
preempted by federal law and was therefore, not enforceable. The DOT
also found that the DFW Use Agreement did not preclude American from
conducting interstate operations at Love Field. Fort Worth, American
and DFW have appealed the DOT's order to the Fifth Circuit Court of
Appeals.
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17
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.
OTHER INFORMATION
In April 1999, the Company announced that it will accelerate the
retirement of nine McDonnell Douglas DC-10 and 16 Boeing 727-200
aircraft earlier than anticipated, thereby eliminating American's
entire DC-10 fleet by the end of 2000 and advancing the retirement of
the Boeing 727 fleet to the end of 2003. The accelerated retirement
of these aircraft will allow American to keep capacity growth in line
with global economic growth.
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 for the
year ended December 31, 1998.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes from the information provided in
Item 7A of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In January 1985, American announced a new fare category, the "Ultimate
SuperSaver," a discount, advance purchase fare that carried a 25
percent penalty upon cancellation. On December 30, 1985, a class
action lawsuit was filed in Circuit Court, Cook County, Illinois
entitled Johnson vs. American Airlines, Inc. The Johnson 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 purported class action cases (Wolens et al v. American Airlines,
Inc. and Tucker v. American Airlines, Inc.) 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. In the
consolidated action, the plaintiffs seek to represent all persons who
joined the AAdvantage program before May 1988 and accrued mileage
credits before the seat limitations were introduced and allege that
these changes breached American's contract with AAdvantage members.
Plaintiffs seek money damages and attorney's fees. 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 the Airline Deregulation Act 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 on the
plaintiffs' motion for class certification. American is vigorously
defending the lawsuit.
Gutterman et al. v. American Airlines, Inc. is also pending in the
Circuit Court of Cook County, Illinois. 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 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 and
February 1, 1995 (the date the change became effective). 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,
which motion has not been ruled upon. American is vigorously
defending the lawsuit.
A federal grand jury in Miami is investigating whether American and
American Eagle 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. Since that time, a number of employees have
testified before the grand jury. In addition, American has been
served with three subpoenas calling for the production of documents
relating to the handling of courier shipments, cargo, excess baggage
and hazardous materials handling and spills. American produced
documents responsive to the three subpoenas. American 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. On February 2,
1999, prior to any discovery being taken and a class being certified,
the court granted the defendants' motion for summary judgment holding
that Plaintiff's claims are preempted by the Airline Deregulation
Act. Plaintiff has filed an appeal of the dismissal of the lawsuit.
American intends to vigorously defend the granting of the summary
judgment on appeal.
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PART II
Item 1. Legal Proceedings (Continued)
On April 13, 1999, an antitrust class action lawsuit was filed
against American Airlines, Inc., AMR Corporation and AMR Eagle Holding
Corp. in the United States District Court for the Southern District of
Florida (Zifrony v. American Airlines, Inc., et al.). The lawsuit
alleges that American has illegally monopolized or attempted to
monopolize the market for passenger air travel into and out of DFW
International Airport (DFW) and Miami International Airport (MIA) by
engaging in a wide array of exclusionary, anticompetitive and
predatory practices and arrangements in violation of the federal
antitrust laws. The as yet uncertified class includes all persons who
purchased tickets for air travel on defendants into or out of DFW or
MIA from April 1995 to the present. The relief sought is treble
damages, injunctive relief, attorneys' fees, and costs. To date,
defendants have not been served with the lawsuit. Defendants intend
to defend vigorously the case.
On May 13, 1999, the Department of Justice sued AMR Corporation,
American Airlines, Inc., and AMR Eagle Holding Corporation in federal
court in Wichita, Kansas. The lawsuit alleges that American violated
federal antitrust law by monopolizing and attempting to monopolize
airline passenger service to and from Dallas/Fort Worth International
Airport. The Department of Justice seeks to enjoin American from
engaging in the alleged improper conduct and to impose restraints on
American to remedy the alleged effects of its past conduct. American
intends to defend the lawsuit vigorously.
Item 5. Other Information
Legislation has been introduced in Congress that would, if enacted,
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 (for further information, see Item 1.
Legal Proceedings). Also, in April 1998, the 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) restrictions are imposed
upon American's ability to respond to a competitor, or (ii)
competitors have a financial advantage in the purchase of aircraft
because of federal assistance, American's business may be adversely
impacted.
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20
PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
10.1 AMR Corporation 1999 Directors' Stock Appreciation Rights Plan.
12 Computation of ratio of earnings to fixed charges for the three
months ended March 31, 1999 and 1998.
27.1 Financial Data Schedule as of March 31, 1999.
27.2 Restated Financial Data Schedule as of March 31, 1998.
On January 21, 1999, AMR filed a report on Form 8-K relative to a
press release issued to report the Company's fourth quarter and full
year 1998 earnings.
On February 18, 1999, AMR filed a report on Form 8-K relative to a
press release issued by American Airlines, Inc. to report certain of
the estimated damages it had suffered as a consequence of the illegal
job actions of the Allied Pilots Association.
On February 24, 1999, AMR filed a report on Form 8-K to announce
the completion of the merger of American Airlines, Inc. and Reno Air,
Inc.
On March 18, 1999, AMR filed a report on Form 8-K relative to a
press release issued to announce that the Company's board of directors
has authorized management to repurchase up to an additional $500
million of its outstanding common stock and to report the estimated
pre-tax earnings impact of the Allied Pilots Association illegal job
action during the first quarter of 1999.
On April 22, 1999, AMR filed a report on Form 8-K relative to a
press release issued to report the Company's first quarter 1999
earnings and to announce the acceleration of the retirement of nine DC-
10 widebody aircraft and 16 Boeing 727 narrowbody aircraft.
-18-
21
Exhibit 12
AMR CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(in millions)
Three Months Ended
March 31,
1999 1998
Earnings:
Earnings from continuing operations
before income taxes $ 173 $ 477
Add: Total fixed charges (per below) 308 283
Less: Interest capitalized 33 18
Total earnings $ 448 $ 742
Fixed charges:
Interest $ 91 $ 96
Portion on rental expense
representative of the interest factor 215 186
Amortization of debt expense 2 1
Total fixed charges $ 308 $ 283
Ratio of earnings to fixed charges 1.45 2.62
-19-
22
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: May 14, 1999 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President and Chief
Financial Officer
-20-
23
5
1,000,000
3-MOS
DEC-31-1999
MAR-31-1999
62
1,121
1,737
33
639
4,240
23,930
8,841
22,224
5,973
4,023
0
0
1,571
4,887
22,224
0
4,483
0
4,325
0
0
92
173
79
94
64
0
0
158
.99
.96
5
1,000,000
3-MOS
DEC-31-1998
MAR-31-1998
122
2,057
1,554
22
632
4,973
21,271
7,987
21,255
5,661
3,808
0
0
2,710
3,690
21,255
0
4,634
0
4,086
0
0
97
477
192
285
5
0
0
290
1.68
1.62
25 Exhibit 10.1
AMR CORPORATION
1999 Directors' Stock Appreciation Rights Plan
SECTION 1. Purpose, Definitions.
The purpose of the AMR Corporation 1999 Directors' Stock
Appreciation Rights Plan is to enable AMR Corporation to attract
and retain qualified Directors for the Board and to strengthen
the mutuality of interests between the Directors and the
Company's shareholders by offering such Directors' Stock
Appreciation Rights.
For purposes of the Plan, the following terms will be
defined as set forth below:
(a) "Award" mean a grant of Stock Appreciation Rights
pursuant to this Plan.
(b) "Board" means the Board of Directors of the Company.
(c) A "Change in Control" means the happening of any of
the following:
(i) When any "person" as defined in Section 3(a)(9) of
the Exchange Act and as used in Sections 13(d) and
14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company,
any Subsidiary or any employee benefit plan sponsored or
maintained by the Company or any Subsidiary (including any
trustee of such plan acting as trustee), directly or
indirectly, becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act, as amended from time to
time), of securities of the Company representing fifteen
percent (15%) or more of the combined voting power of the
Company's then outstanding securities;
(ii) The individuals who, as of the Effective Date of
this Plan, constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a
Director subsequent to the Effective Date of the Plan whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority
of the Directors then comprising the Incumbent Board will be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of Directors or other
actual or threatened solicitation of proxies or consents by
or on behalf of a person other than the Board; or
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the acquisition
of assets of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination: (A) all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the then outstanding shares
1
26
of Stock of the Company and the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of Directors immediately prior to such
Business Combination beneficially own, directly or indirectly,
more than sixty percent (60%) of, respectively, the then
outstanding shares of common stock and the combined voting power
of the then outstanding voting securities entitled to vote
generally in the election of Directors, as the case may be, of
the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result
of such transaction owns the Company or all or substantially all
of the Company's assets either directly or through one or more
subsidiaries); (B) no person (excluding any employee benefit plan
(or related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly or
indirectly, fifteen percent (15%) or more of, respectively, the
then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed
prior to the Business Combination; and (C) at least a majority of
the members of the board of Directors of the corporation
resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Combination; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(d) "Committee" means the Committee referred to in
Section 2 of the Plan.
(e) "Company" means AMR Corporation, a corporation
organized under the laws of the State of Delaware, or any
successor corporation.
(f) "Director" means a duly elected member of the Board of
Directors who is not also an employee of the Company or any
Subsidiary or Affiliate.
(g) "Disability" means disability as determined under
procedures established by the Committee for purposes of this
Plan.
(h) "Early Retirement" means retirement from active service
on the Board, with the express consent of the Board, before a
Director reaches mandatory retirement age.
(i) Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, and any successor thereto.
(j) "Fair Market Value" means, as of any given date, the
mean between the highest and lowest quoted selling price, regular
way, of the Stock on the New York Stock Exchange or, if no such
sale of Stock occurs on the New York Stock Exchange on such date,
the fair market value of the Stock as determined by the Committee
in good faith.
2
27
(k) "Normal Retirement" means retirement from active
service on the Board at the then applicable mandatory retirement
age.
(l) "Plan" means this AMR Corporation 1999 Directors' Stock
Appreciation Rights Plan, as it may be amended from time to time.
(m) "Retirement" means Normal or Early Retirement.
(n) "Stock" means the Common Stock, $1.00 par value per
share, of the Company.
(o) "Stock Appreciation Right" or "SAR" means the right
pursuant to a grant under Section 4 to surrender to the Company
all (or a portion) of an Award in exchange for a cash amount
equal to the difference between: (i) the Fair Market Value, as of
the date such SAR is surrendered; and (ii) the base price of such
SAR.
SECTION 2. Administration.
(a) The Plan will be administered by a committee of not
less than two members of the Board, who will be appointed by, and
serve at the pleasure of, the Board. The functions of the
Committee specified in the Plan will be exercised by the Board,
if and to the extent that no Committee exists which has the
authority to so administer the Plan.
(b) The Committee will have full authority to grant to
Directors, pursuant to the terms of the Plan, Stock Appreciation
Rights.
(c) In particular, the Committee will have the authority:
(i) to select the Directors to whom SARs may from time
to time be granted hereunder;
(ii) subject to the provisions of Section 3, to
determine the number of SARs to be covered by each Award;
and
(iii) to determine the terms and conditions, not
inconsistent with the terms of this Plan, of an Award
(including, but not limited to, any restriction or
limitation on, or any vesting acceleration regarding, such
Award based in each case on such factors as the Committee
will determine in its sole discretion).
(d) The Committee will have the authority: to adopt, alter
and repeal such rules, guidelines and practices governing the
Plan as it will, from time to time, deem advisable; to interpret
the terms and provisions of the Plan and any Award (and any
agreements relating thereto); and to otherwise supervise the
administration of the Plan.
(e) All decisions made by the Committee pursuant to the
provisions of the Plan will be made in the Committee's sole
discretion and will be final and binding on all persons,
including the Company and the Directors.
3
28
SECTION 3. Number of SARs; Forfeiture;
Reorganization
(a) The total number of SARs that may be granted under the
Plan is 300,000, as such number may be adjusted pursuant to
Section 3(d).
(b) The Committee will have the authority to grant an Award
to a Director; provided, in no event will the number of SARs
granted to any one Director during any calendar year exceed
5,000, as such number may be adjusted pursuant to Section 3(d).
(c) If any SARs that have been awarded cease to be subject
to an Award or otherwise terminate without a cash payment being
made to the Director, such SARs will again be available for
distribution in connection with future Awards to Directors.
(d) In the event of any merger,
reorganization, consolidation,
recapitalization, stock dividend, stock split
or other change in corporate structure
affecting the Stock, such substitution or
adjustment will be made in the aggregate
number of SARs remaining to be issued under
the Plan and in the number and purchase price
of outstanding SARs, as may be determined to
be appropriate by the Committee, in its sole
discretion, provided that the number of SARs
subject to any Award will always be a whole
number.
SECTION 4. Stock Appreciation Rights.
(a) An SAR may be exercised by a Director in accordance
with the procedures established by the Committee. Upon such
exercise, the Director will be entitled to receive a cash amount
determined in accordance with Section 4(g).
(b) The base price for an SAR will be the Fair Market Value
on the date the SAR is granted.
(c) SARs will be exercisable at such time or times and
subject to such terms and conditions as will be determined by the
Committee; provided, however, that except as determined by the
Committee, no SAR will be exercisable (i) prior to the first
anniversary date of its grant and (ii) more than ten (10) years
after its grant date. If the Committee provides, in its sole
discretion, that any SAR is exercisable only in installments, the
Committee may waive such installment provisions at any time in
whole or in part, based on such factors as the Committee will
determine, in its sole discretion.
(d) Unless the Committee will permit (on such terms and
conditions as it will establish) an SAR to be transferred to a
member of the Director's immediate family or to a trust or
similar vehicle for the benefit of such immediate family members,
no SAR will be assignable or transferable except by will or the
laws of descent and distribution, and except to the extent
required by law, no right or interest of any Director in an SAR
will be subject to any lien, obligation or liability of the
Director.
4
29
(e) If a Director's service on the Board terminates by
reason of death, Disability or Retirement, any SAR held by such
Director may thereafter be exercised in accordance with the terms
and conditions established by the Committee.
(f) Unless otherwise determined by the Committee, if a
Director's service on the Board terminates for any reason other
than death, Disability or Retirement, the SAR will thereupon
terminate.
(g) Upon the exercise of an SAR, a Director will be
entitled to receive an amount in cash equal in value to the
excess of the Fair Market Value over the base price per share
specified in the related SAR multiplied by the number of SARs
being exercised.
(h) In the event of a Change in Control, any SARs
awarded under the Plan not previously exercisable and vested will
become fully exercisable and vested. In the event that the
transaction giving rise to the Change of Control is intended to
be accounted for as a pooling of interest transaction, each
Director shall receive, in lieu of a cash payment, the greatest
number of whole shares of the class of common stock of the
corporation whose common stock in publicly traded following the
transaction as in equal to the quotient of (i) the product of (1)
the excess of (A) the Fair Market Value over (B) the base price
of an SAR, times (2) the number of shares of stock related to the
SAR, divided by (ii) the mean of the highest and lowest quoted
selling prices, regular way, of a share of such common stock on
the principal securities exchange or national quotation system on
which such stock is listed or qualified to trade. If the Change
of Control does not relate to a pooling of interest transaction,
each Director will receive a cash amount in lieu of his SARs
equal to the dollar amount determined under subclause (i) of the
immediately preceding sentence.
SECTION 5. Amendments and Termination.
(a) The Board may amend, alter, or discontinue the Plan,
but no amendment, alteration, or discontinuation will be made
which would impair the rights of a Director to an Award without
the Director's consent.
(b) Subject to the above provisions, the Board will have
broad authority to amend the Plan to take into account changes in
applicable securities and tax laws and accounting rules, as well
as other developments.
SECTION 6. General Provisions.
(a) Nothing contained in this Plan will prevent the Board
from adopting other or additional compensation arrangements,
subject to stockholder approval if such approval is required, and
such arrangements may be either generally applicable or
applicable only in specific cases.
(b) The adoption of the Plan will not confer upon a
Director any right to continued service on the Board nor will it
interfere in any way with the right of the Company to terminate
the Director's service at any time.
(c) The Plan is intended to constitute an "unfunded" plan.
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With respect to any payments not yet made to a Director by the
Company, nothing contained herein will give any such Director any
rights that are greater than those of a general creditor of the
Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations
created under the Plan to make payments with respect to Awards
hereunder; provided, however, that unless the Committee otherwise
determines with the consent of the affected Director, the
existence of such trusts or other arrangements is consistent with
the "unfunded" status of the Plan.
(d) The Plan, all Awards and all actions taken thereunder
will be governed by and construed in accordance with the laws of
the State of Delaware without regard to conflict of law
principles.
SECTION 7. Term of Plan.
The Plan will be effective as of May 19, 1999. No Award
will be granted pursuant to the Plan on or after the tenth
anniversary of the effective date of the Plan, but Awards granted
prior to such tenth anniversary may extend beyond that date, in
accordance with their terms.
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