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, 2002.
[ ]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 - 155,119,293 shares as of April 16, 2002.
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INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three months ended March
31, 2002 and 2001
Condensed Consolidated Balance Sheets -- March 31, 2002 and
December 31, 2001
Condensed Consolidated Statements of Cash Flows -- Three months
ended March 31, 2002 and 2001
Notes to Condensed Consolidated Financial Statements -- March 31,
2002
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 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,
2002 2001
Revenues
Passenger - American Airlines $3,484 $ 3,935
- AMR Eagle 305 354
Cargo 134 176
Other revenues 213 295
Total operating revenues 4,136 4,760
Expenses
Wages, salaries and benefits 2,080 1,746
Aircraft fuel 527 707
Depreciation and amortization 341 313
Other rentals and landing fees 289 257
Maintenance, materials and repairs 266 280
Aircraft rentals 226 148
Food service 170 184
Commissions to agents 161 224
Other operating expenses 805 905
Total operating expenses 4,865 4,764
Operating Loss (729) (4)
Other Income (Expense)
Interest income 18 40
Interest expense (166) (119)
Interest capitalized 22 41
Miscellaneous - net (8) (15)
(134) (53)
Loss Before Income Taxes (863) (57)
Income tax benefit (288) (14)
Net Loss $ (575) $ (43)
Loss Per Share
Basic and Diluted $(3.71) $ (0.28)
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,
2002 2001
Assets
Current Assets
Cash $ 134 $ 120
Short-term investments 2,181 2,872
Receivables, net 1,839 1,414
Inventories, net 758 822
Deferred income taxes 793 790
Other current assets 547 522
Total current assets 6,252 6,540
Equipment and Property
Flight equipment, net 15,429 14,980
Other equipment and property, net 2,229 2,079
Purchase deposits for flight equipment 689 929
18,347 17,988
Equipment and Property Under Capital Leases
Flight equipment, net 1,512 1,572
Other equipment and property, net 93 95
1,605 1,667
Goodwill and route acquisition costs 2,230 2,221
Airport operating and gate lease rights, net 487 496
Other assets 4,042 3,929
$ 32,963 $ 32,841
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,462 $ 1,785
Accrued liabilities 2,284 2,192
Air traffic liability 2,930 2,763
Current maturities of long-term debt 520 556
Current obligations under capital leases 191 216
Total current liabilities 7,387 7,512
Long-term debt, less current maturities 8,784 8,310
Obligations under capital leases, less
current obligations 1,454 1,524
Deferred income taxes 1,965 1,627
Postretirement benefits 2,573 2,538
Other liabilities, deferred gains and
deferred credits 5,922 5,957
Stockholders' Equity
Preferred stock - -
Common stock 182 182
Additional paid-in capital 2,847 2,865
Treasury stock (1,693) (1,716)
Accumulated other comprehensive loss (71) (146)
Retained earnings 3,613 4,188
4,878 5,373
$ 32,963 $ 32,841
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,
2002 2001
Net Cash Provided by (Used for) Operating
Activities $ (406) $ 19
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (619) (847)
Net decrease in short-term investments 691 758
Debtor-in-possession financing provided to
Trans World Airlines, Inc. - (312)
Proceeds from sale of equipment and property 13 127
Net cash provided by (used for) investing activities 85 (274)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (259) (291)
Proceeds from:
Issuance of long-term debt 592 604
Exercise of stock options 2 25
Net cash provided by financing activities 335 338
Net increase in cash 14 83
Cash at beginning of period 120 89
Cash at end of period $ 134 $ 172
The accompanying notes are an integral part of these financial
statements.
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, these
financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial
position, results of operations and cash flows for the periods
indicated. The Company's 2002 results continue to be adversely
impacted by the September 11, 2001 terrorist attacks. In addition,
on April 9, 2001, American Airlines, Inc. (a wholly owned
subsidiary of AMR Corporation) purchased substantially all of the
assets and assumed certain liabilities of Trans World Airlines,
Inc. (TWA). Accordingly, the operating results of TWA are included
in the accompanying condensed consolidated financial statements for
the three-month period ended March 31, 2002 but not for the three-
month period ended March 31, 2001. When utilized in this report,
all references to American Airlines, Inc. include TWA
(collectively, American). Results of operations for the periods
presented herein are not necessarily indicative of results of
operations for the entire year. 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, 2001 ("2001 Form 10-
K"). Certain amounts from 2001 have been reclassified to conform
with the 2002 presentation.
2.Accumulated depreciation of owned equipment and property at March 31,
2002 and December 31, 2001 was $8.9 billion. Accumulated
amortization of equipment and property under capital leases at March
31, 2002 and December 31, 2001 was $1.2 billion.
3.The following table provides unaudited pro forma consolidated
results of operations, assuming the acquisition of TWA had occurred
as of January 1, 2001 (in millions, except per share amounts):
Three Months Ended
March 31,2001
Operating revenues $ 5,542
Net loss (104)
Loss per share $ (0.67)
The unaudited pro forma consolidated results of operations have
been prepared for comparative purposes only. These amounts are not
indicative of the combined results that would have occurred had the
transaction actually been consummated on the date indicated above
and are not indicative of the consolidated results of operations
which may occur in the future.
4.As discussed in the notes to the consolidated financial
statements included in the Company's 2001 Form 10-K, Miami-Dade County
(the County) is currently investigating and remediating various
environmental conditions at the Miami International Airport (MIA) and
funding the remediation costs through landing fees and various cost
recovery methods. American and AMR Eagle have been named as
potentially responsible parties (PRPs) for the contamination at MIA.
During the second quarter of 2001, the County filed a lawsuit against
17 defendants, including American, in an attempt to recover its past
and future cleanup costs (Miami-Dade County, Florida v. Advance Cargo
Services, Inc., et al. in the Florida Circuit Court). In addition to
the 17 defendants named in the lawsuit, 243 other agencies and
companies were also named as PRPs and contributors to the
contamination. American's and AMR Eagle's portion of the cleanup
costs cannot be reasonably estimated due to various factors, including
the unknown extent of the remedial actions that may be required, the
proportion of the cost that will ultimately be recovered from the
responsible parties, and uncertainties regarding the environmental
agencies that will ultimately supervise the remedial activities and
the nature of that supervision.
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
In addition, the Company is subject to environmental issues at various
other airport and non-airport locations. Management believes, after
considering a number of factors, that the ultimate disposition of these
environmental issues is not expected to materially affect the Company's
consolidated financial position, results of operations or cash
flows. Amounts recorded for environmental issues are based on the
Company's current assessments of the ultimate outcome and,
accordingly, could increase or decrease as these assessments
change.
5.As of March 31, 2002, the Company had commitments to acquire the
following aircraft: 47 Boeing 737-800s, 12 Boeing 777-200ERs, nine
Boeing 767-300ERs, one Boeing 757-200, 117 Embraer regional jets and
22 Bombardier CRJ-700s. Deliveries of these aircraft are scheduled to
continue through 2008. Payments for these aircraft are expected to be
approximately $825 million during the remainder of 2002, $1.7 billion
in 2003, $1.2 billion in 2004 and an aggregate of approximately $1.9
billion in 2005 through 2008.
6.During the three-month period ended March 31, 2002, American and
AMR Eagle borrowed approximately $348 million under various debt
agreements which are secured by aircraft. Effective interest rates on
these agreements are based on London Interbank Offered Rate plus a
spread and mature over various periods of time with a final maturity
in 2018.
In March 2002, the Regional Airports Improvement Corporation issued
facilities sublease revenue bonds at the Los Angeles International
Airport to provide reimbursement to American for certain facility
construction costs. The proceeds of approximately $215 million
provided to American have been recorded as long-term debt on the
condensed consolidated balance sheets. These obligations bear
interest at fixed rates, with an average rate of 7.88 percent, and
mature over various periods of time through 2024.
7.Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended (SFAS 133). SFAS
133 required the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges are
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 are either 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 is immediately recognized in
earnings. The adoption of SFAS 133 did not result in a cumulative
effect adjustment being recorded to net income for the change in
accounting. However, the Company recorded a transition adjustment
of approximately $64 million in Accumulated other comprehensive
loss in the first quarter of 2001.
In addition, effective January 1, 2002, the Company adopted
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (SFAS 142). SFAS 142 requires the Company
to test goodwill and indefinite-lived intangible assets (for AMR,
route acquisition costs) for impairment rather than amortize them.
During the first quarter of 2002, the Company completed its
impairment analysis for route acquisition costs in accordance with
SFAS 142. The analysis did not result in an impairment charge.
The Company will complete the impairment analysis for its $1.4
billion of goodwill during the second quarter of 2002 and record an
impairment adjustment at that time, if necessary.
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The following table provides information relating to the Company's
amortized and unamortized intangible assets as of March 31, 2002
(in millions):
Accumulated
Cost Amortization
Amortized intangible assets:
Airport operating rights $ 516 $ 163
Gate lease rights 209 75
Total $ 725 $ 238
Unamortized intangible assets:
Goodwill $1,401
Route acquisition costs 829
Total $2,230
Airport operating and gate lease rights are being amortized on a
straight-line basis over 25 years to a zero residual value. For
the three-month period ended March 31, 2002, the Company recorded
amortization expense of approximately $9 million related to these
intangible assets. The Company expects to record annual
amortization expense of approximately $29 million in each of the
next five years related to these intangible assets.
The pro forma effect of SFAS 142 - assuming the Company had adopted
this standard as of January 1, 2001 - is immaterial to the
Company's net loss and loss per share for the three-month period
ended March 31, 2001.
8.The Company includes unrealized gains and losses on available-for-
sale securities, changes in minimum pension liabilities and changes in
the fair value of certain derivative financial instruments that
qualify for hedge accounting in comprehensive income (loss). For the
three months ended March 31, 2002 and 2001, comprehensive income
(loss) was $(500) million and $31 million, respectively. The
difference between net loss and comprehensive loss for the three
months ended March 31, 2002 is due primarily to the accounting for the
Company's derivative financial instruments under SFAS 133. The
difference between net loss and comprehensive income for the three
months ended March 31, 2001 was due primarily to the cumulative effect
of the adoption of SFAS 133 and the accounting for the Company's
derivative financial instruments under SFAS 133.
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
9.The following table sets forth the computations of basic and
diluted loss per share (in millions, except per share data):
Three Months Ended
March 31,
2002 2001
Numerator:
Net loss - numerator for basic and
diluted loss per share $(575) $ (43)
Denominator:
Denominator for basic and diluted
loss per share- weighted-average shares 155 154
Basic and diluted loss per share $ (3.71) $ (0.28)
For the three months ended March 31, 2002 and 2001, approximately 9
million and 14 million potential dilutive shares, respectively,
were not added to the denominator because inclusion of such shares
would be antidilutive.
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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, 2002 and 2001
Summary AMR Corporation's (AMR or the Company) net loss during the
first quarter of 2002 was $575 million, or $3.71 per share, as
compared to a net loss of $43 million, or $0.28 per share for the same
period in 2001. AMR's operating loss of $729 million increased $725
million compared to the same period in 2001. The Company's 2002
results continue to be adversely impacted by the September 11, 2001
terrorist attacks. In addition, on April 9, 2001, American Airlines,
Inc. (a wholly owned subsidiary of AMR) purchased substantially all of
the assets and assumed certain liabilities of Trans World Airlines,
Inc. (TWA). Accordingly, the operating results of TWA are included in
the accompanying condensed consolidated financial statements for the
three-month period ended March 31, 2002 but not for the three-month
period ended March 31, 2001. All references to American Airlines,
Inc. include TWA (collectively, American).
Although traffic has continued to increase on significantly reduced
capacity since the events of September 11, 2001, the Company's first
quarter 2002 revenues were down significantly year-over-year. In
addition to the residual effects of September 11, the Company's
revenues continue to be negatively impacted by the economic slowdown
- -- seen largely in business travel declines -- and an increase in fare
sale activity. In total, the Company's revenues decreased $624
million, or 13.1 percent, in the first quarter of 2002 from the same
period last year. American's passenger revenues decreased by 11.5
percent, or $451 million in the first three months of 2002 from the
same period in 2001. American's domestic revenue per available seat
mile (RASM) decreased 15.4 percent, to 8.7 cents, on a capacity
increase of 9.4 percent, to 29.3 billion available seat miles (ASMs).
International RASM decreased to 8.66 cents, or 10.6 percent, on a
capacity decrease of 11.4 percent. The decrease in international RASM
was due to a 14.1 percent decrease and 11.9 percent decrease in
European and Latin American RASM, respectively, slightly offset by a 9
percent increase in Pacific RASM. The decrease in international
capacity was driven by a 39.5 percent, 13.9 percent and 4 percent
reduction in Pacific, European and Latin American ASMs, respectively.
AMR Eagle's passenger revenues decreased 13.8 percent, or $49 million.
AMR Eagle's traffic increased 6.9 percent while capacity decreased 1.3
percent, to approximately 1.6 billion ASMs. As with American, the
decrease in AMR Eagle's revenues was due primarily to the continued
impact of the September 11, 2001 terrorist attacks and the economic
slowdown.
Cargo revenues decreased $42 million, or 23.9 percent, for the same
reasons as noted above.
Other revenues decreased 27.8 percent, or $82 million, due primarily
to decreases in contract maintenance work that American performs for
other airlines, and decreases in codeshare revenue and employee travel
service charges.
The Company's operating expenses increased 2.1 percent, or $101
million. American's cost per ASM increased 0.4 percent to 11.30
cents. Wages, salaries and benefits increased 19.1 percent, or $334
million, primarily due to contractual wage rate and seniority
increases that are built into the Company's labor contracts. In
addition, the Company experienced increases in its pension and health
insurance costs, the latter reflecting rapidly rising medical care and
prescription drug costs. Aircraft fuel expense decreased 25.5
percent, or $180 million, due primarily to a 23.3 percent decrease in
the Company's average price per gallon of fuel. Other rentals and
landing fees increased 12.5 percent, or $32 million, due to higher
facilities rent and landing fees across American's system. Aircraft
rentals increased $78 million, or 52.7 percent, due primarily to the
addition of TWA aircraft. Commissions to agents decreased 28.1
percent, or $63 million, due primarily to an 11.7 percent decrease in
passenger revenues and a decrease in the percentage of commissionable
transactions. Other operating expenses decreased 11 percent, or $100
million, due primarily to decreases in contract maintenance work that
American performs for other airlines, and decreases in travel and
incidental costs, advertising and promotion costs, and credit card
fees, which were partially offset by higher insurance and security
costs.
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Other income (expense), historically a net expense, increased $81
million due to the following: Interest income decreased 55 percent, or
$22 million, due primarily to decreases in interest rates. Interest
expense increased $47 million, or 39.5 percent, resulting primarily
from the increase in the Company's long-term debt. Interest
capitalized decreased $19 million, or 46.3 percent, due primarily to a
decrease in purchase deposits for flight equipment. Miscellaneous-net
decreased 46.7 percent, or $7 million, due to the write-down of
certain investments held by the Company during the first quarter of
2001.
The effective tax rate for the three months ended March 31, 2002 was
impacted by a $27 million charge resulting from a provision in Congress'
economic stimulus package that changes the period for carrybacks of
net operating losses (NOLs). This change allows the Company to carry
back 2001 and 2002 NOLs for five years, rather than two years under
the existing law, allowing the Company to more quickly recover its
NOLs. The extended NOL carryback did, however, result in the
displacement of foreign tax credits taken in prior years. These
credits are now expected to expire before being utilized by the
Company, resulting in this charge.
OPERATING STATISTICS
Three Months Ended
March 31,
2002 2001
American Airlines (*)
Revenue passenger miles (millions) 27,817 26,452
Available seat miles (millions) 40,089 38,977
Cargo ton miles (millions) 463 549
Passenger load factor 69.4% 67.9%
Breakeven load factor 87.4% 68.2%
Passenger revenue yield per passenger
mile (cents) 12.52 14.88
Passenger revenue per available seat
mile (cents) 8.69 10.10
Cargo revenue yield per ton mile (cents) 28.74 31.68
Operating expenses per available
seat mile (cents) 11.30 11.26
Fuel consumption (gallons, in millions) 745 743
Fuel price per gallon (cents) 67.2 87.6
Fuel price per gallon, excluding fuel
taxes (cents) 61.7 82.0
Operating aircraft at period-end 852 719
AMR Eagle
Revenue passenger miles (millions) 919 860
Available seat miles (millions) 1,567 1,588
Passenger load factor 58.6% 54.2%
Operating aircraft at period-end 283 267
(*) 2002 statistics include the operating results of TWA whereas
the 2001 amounts do not.
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Operating aircraft at March 31, 2002, included:
American Airlines Aircraft AMR Eagle Aircraft
Airbus A300-600R 34 ATR 42 29
Boeing 717-200 (1) 11 Bombardier CRJ-700 3
Boeing 727-200 (2) 15 Embraer 135 40
Boeing 737-800 77 Embraer 140 22
Boeing 757-200 150 Embraer 145 56
Boeing 767-200 8 Super ATR 42
Boeing 767-200 Extended Range 21 Saab 340B 66
Boeing 767-300 Extended Range 58 Saab 340B Plus 25
Boeing 777-200 Extended Range 42 Total 283
Fokker 100 74
McDonnell Douglas MD-80 362
Total 852
1 The Boeing 717-200 fleet will be removed from service by June 2002.
2 The Boeing 727-200 fleet will be removed from service by May 2002.
The average aircraft age for American's aircraft is 9.9 years and 6.6
years for AMR Eagle aircraft.
In addition, the following owned and leased aircraft were not operated
by the Company as of March 31, 2002: 19 owned Boeing 727-200s, 15
operating leased McDonnell Douglas DC-9s, 19 operating leased Boeing
717-200s, nine owned McDonnell Douglas DC-10-10s, four operating
leased McDonnell Douglas MD-80s, three owned McDonnell Douglas MD-11s,
two owned McDonnell Douglas DC-10-30s, and four owned, six capital
leased and two operating leased Saab 340Bs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities in the three-month period ended
March 31, 2002 was $406 million, an increase of $425 million over the
same period in 2001, due primarily to an increase in the Company's net
loss. Capital expenditures for the first three months of 2002 were
$619 million, and included the acquisition of six Boeing 757-200s, two
Boeing 777-200ERs, seven Embraer 140s and two Bombardier CRJ-700
aircraft. These capital expenditures were financed primarily through
secured mortgage and debt agreements.
As of March 31, 2002, the Company had commitments to acquire the
following aircraft: 47 Boeing 737-800s, 12 Boeing 777-200ERs, nine
Boeing 767-300ERs, one Boeing 757-200, 117 Embraer regional jets and
22 Bombardier CRJ-700s. Deliveries of these aircraft are scheduled to
continue through 2008. Payments for these aircraft are expected to be
approximately $825 million during the remainder of 2002, $1.7 billion
in 2003, $1.2 billion in 2004 and an aggregate of approximately $1.9
billion in 2005 through 2008.
OTHER INFORMATION
In addition to the Company's approximately $2.3 billion in cash and
short-term investments as of March 31, 2002, the Company has available
a variety of future financing sources, including, but not limited to:
(i) the receipt of the remainder of the U.S. Government grant
authorized by the Air Transportation Safety and System Stabilization
Act (the Act), which is estimated to be in excess of $100 million,
(ii) additional secured aircraft debt, (iii) the availability of the
Company's $1 billion credit facility, (iv) sale-leaseback transactions
of owned property, including aircraft and real estate, (v) the
recovery of past federal income taxes paid as a result of a provision
in the recently passed economic stimulus package regarding NOL
carrybacks (in April 2002, the Company received approximately $393
million related to the utilization of its remaining 2001 NOL), (vi)
tax-exempt borrowings for airport facilities, (vii) securitization of
future operating receipts, (viii) unsecured borrowings, and (ix)
borrowings backed by federal loan guarantees as provided under the
Act. No assurance can be given that any of these financing sources
will be available on terms acceptable to the Company. However, the
Company believes it will meet its current financing needs.
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As a result of the September 11, 2001 events, aviation insurers have
significantly reduced the maximum amount of insurance coverage
available to commercial air carriers for liability to persons other
than employees or passengers for claims resulting from acts of
terrorism, war or similar events (war-risk coverage). At the same
time, they significantly increased the premiums for such coverage as
well as for aviation insurance in general. Pursuant to authority
granted in the Act, the Government has supplemented the commercial war-
risk insurance until May 19, 2002 with a third party liability policy
to cover losses to persons other than employees or passengers for
renewable 60-day periods. In the event the insurance carriers reduce
further the amount of insurance coverage available or the Government
fails to renew war-risk insurance, the Company's operations and/or
financial position, results of operations or cash flows would be
adversely impacted.
As discussed in the Company's 2001 Form 10-K, a provision in the
current Allied Pilots Association contract further limits the number
of ASMs and block hours flown by American's regional carrier partners
when American pilots are on furlough. As AMR Eagle continues to
accept previously ordered regional jets, this will cause the ASM cap
to be reached sometime in the first half of 2002, necessitating
actions to comply with that cap. American is working with its
regional partners to ensure that it is in compliance with this
provision. Actions currently being taken and considered by AMR Eagle
to reduce its capacity are discussed in the Company's 2001 Form 10-K.
In addition, American is removing its code from flights of the
American Connection carriers, which are independent carriers that
provide feed to American's St. Louis hub. American believes that the
combination of all these actions will enable it to comply with the ASM
cap through 2002 and for sometime beyond.
OUTLOOK
Capacity for American is expected to be down approximately 11 percent
in the second quarter of 2002 compared to last year's second quarter
levels. AMR Eagle's second quarter capacity will be down about three
percent from last year's levels. For the second quarter of 2002, the
Company expects traffic to be lower by approximately 11 percent as
compared to last year's second quarter levels. Pressure to reduce
costs will continue, although the Company will continue to see higher
wages, salaries and benefit costs, higher security costs and insurance
premiums, and greater interest expense. Although the Company expects
to see an increase in fuel prices as compared to the first quarter of
2002, fuel prices are expected to remain lower in the second quarter
of 2002 as compared to last year's second quarter prices. Further,
the Company expects to see a benefit in commission expense due to the
domestic base commission changes implemented in March 2002. In total
however, American's unit costs for the second quarter of 2002 are
expected to be two to three percent higher than last year's second
quarter. Given this higher unit cost, coupled with the revenue
pressures seen in the first quarter and expected to continue into the
second quarter, the Company expects to incur a loss in the second
quarter (although the Company does not expect this loss to be of the
same magnitude as the Company's first quarter loss), and will likely
incur a loss for 2002.
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 document and in documents
incorporated herein by reference, the words "expects," "plans,"
"anticipates," "believes," and similar expressions are intended to
identify forward-looking statements. Other forward-looking statements
include statements which do not relate solely to historical facts,
such as, without limitation, statements which discuss the possible
future effects of current known trends or uncertainties, or which
indicate that the future effects of known trends or uncertainties
cannot be predicted, guaranteed or assured. 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, including
but not limited to the Form 10-K for the year ended December 31, 2001.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in market risk from the
information provided in Item 7A. Quantitative and Qualitative
Disclosures About Market Risk of the Company's 2001 Form 10-K.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On July 26, 1999, a class action lawsuit was filed, and in November
1999 an amended complaint was filed, against AMR Corporation, American
Airlines, Inc., AMR Eagle Holding Corporation, Airlines Reporting
Corporation, and the Sabre Group Holdings, Inc. in the United States
District Court for the Central District of California, Western
Division (Westways World Travel, Inc. v. AMR Corp., et al.). The
lawsuit alleges that requiring travel agencies to pay debit memos to
American for violations of American's fare rules (by customers of the
agencies) (1) breaches the Agent Reporting Agreement between American
and AMR Eagle and the plaintiffs, (2) constitutes unjust enrichment,
and (3) violates the Racketeer Influenced and Corrupt Organizations
Act of 1970 (RICO). The as yet uncertified class includes all travel
agencies who have been or will be required to pay monies to American
for debit memos for fare rules violations from July 26, 1995 to the
present. The plaintiffs seek to enjoin American from enforcing the
pricing rules in question and to recover the amounts paid for debit
memos, plus treble damages, attorneys' fees, and costs. The Company
intends to vigorously defend the lawsuit. Although the Company
believes that the litigation is without merit, an adverse court decision
could impose restrictions on the Company's relationships with travel
agencies which restrictions could have an adverse impact on the Company.
On May 13, 1999, the United States (through the Antitrust Division of
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 unlawfully monopolized or
attempted to monopolize airline passenger service to and from
Dallas/Fort Worth International Airport (DFW) by increasing service
when new competitors began flying to DFW, and by matching these new
competitors' fares. 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. On April 27, 2001, the U.S. District Court for the District
of Kansas granted American's motion for summary judgment. On June 26,
2001, the U.S. Department of Justice appealed the granting of
American's motion for summary judgment. The parties have submitted
briefs to the 10th Circuit Court of Appeals. No date has been set for
oral argument. The Company intends to defend the lawsuit vigorously.
A final adverse court decision imposing restrictions on the Company's
ability to respond to competitors would have an adverse impact on the
Company.
Between May 14, 1999 and June 7, 1999, seven class action lawsuits
were filed against AMR Corporation, American Airlines, Inc., and AMR
Eagle Holding Corporation in the United States District Court in
Wichita, Kansas seeking treble damages under federal and state
antitrust laws, as well as injunctive relief and attorneys' fees (King
v. AMR Corp., et al.; Smith v. AMR Corp., et al.; Team Electric v. AMR
Corp., et al.; Warren v. AMR Corp., et al.; Whittier v. AMR Corp., et
al.; Wright v. AMR Corp., et al.; and Youngdahl v. AMR Corp., et al.).
Collectively, these lawsuits allege that American unlawfully
monopolized or attempted to monopolize airline passenger service to
and from DFW by increasing service when new competitors began flying
to DFW, and by matching these new competitors' fares. Two of the
suits (Smith and Wright) also allege that American unlawfully
monopolized or attempted to monopolize airline passenger service to
and from DFW by offering discounted fares to corporate purchasers, by
offering a frequent flyer program, by imposing certain conditions on
the use and availability of certain fares, and by offering override
commissions to travel agents. The suits propose to certify several
classes of consumers, the broadest of which is all persons who
purchased tickets for air travel on American into or out of DFW from
1995 to the present. On November 10, 1999, the District Court stayed
all of these actions pending developments in the case brought by the
Department of Justice. As a result, to date no class has been
certified. The Company intends to defend these lawsuits vigorously.
One or more final adverse court decisions imposing restrictions on the
Company's ability to respond to competitors or awarding substantial
money damages would have an adverse impact on the Company.
On January 30, 2002, the named plaintiff in Hall v. United Airlines,
et al., No. 7:00 CV 123-BR(1), pending in the United States District
Court for the Eastern District of North Carolina, filed an amended
complaint alleging that between 1997 and the present, American and the
other defendant airlines conspired to reduce commissions paid to U.S.-
based travel agents in violation of Section 1 of the Sherman Act. The
named plaintiff seeks to certify a nationwide class of travel agents,
but no class has yet been certified. American is vigorously defending
the lawsuit. A final adverse court decision awarding substantial
money damages would have an adverse impact on the Company.
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Item 1. Legal Proceedings (Continued)
Miami-Dade County (the County) is currently investigating and
remediating various environmental conditions at the Miami
International Airport (MIA) and funding the remediation costs through
landing fees and various cost recovery methods. American Airlines,
Inc. and AMR Eagle have been named as potentially responsible parties
(PRPs) for the contamination at MIA. During the second quarter of
2001, the County filed a lawsuit against 17 defendants, including
American Airlines, Inc., in an attempt to recover its past and future
cleanup costs (Miami-Dade County, Florida v. Advance Cargo Services,
Inc., et al. in the Florida Circuit Court). In addition to the 17
defendants named in the lawsuit, 243 other agencies and companies were
also named as PRPs and contributors to the contamination. American's
and AMR Eagle's portion of the cleanup costs cannot be reasonably
estimated due to various factors, including the unknown extent of the
remedial actions that may be required, the proportion of the cost that
will ultimately be recovered from the responsible parties, and
uncertainties regarding the environmental agencies that will
ultimately supervise the remedial activities and the nature of that
supervision. The Company is vigorously defending the lawsuit.
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PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
12 Computation of ratio of earnings to fixed charges for the three
months ended March 31, 2002 and 2001.
Form 8-Ks filed under Item 5 - Other Events
On January 16, 2002, AMR filed a report on Form 8-K relating to a
press release issued by AMR to announce AMR's fourth quarter and full
year 2001 earnings and an agreement with Boeing for the retirement of
the Company's 717 fleet.
Form 8-Ks furnished under Item 9 - Regulation FD Disclosure
On January 7, 2002, AMR furnished a report on Form 8-K to announce
AMR's intent to host a conference call on January 16, 2002 with the
financial community relating to its fourth quarter and full year 2001
earnings.
On January 25, 2002, AMR furnished a report on Form 8-K to provide
an updated fleet plan for AMR. In addition, AMR provided information
regarding presentations by AMR's senior management at upcoming
transportation conferences.
On February 22, 2002, AMR furnished a report on Form 8-K to provide
certain data regarding its unit costs, capacity, traffic and fuel for
the first quarter of 2002.
On March 22, 2002, AMR furnished a report on Form 8-K to provide
certain data regarding its unit costs, fuel, capacity and traffic for
February through May 2002. Additionally, AMR provided information on
the recently passed economic stimulus package which contained a
provision regarding net operating loss carryback that was favorable to
AMR.
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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: April 18, 2002 BY: /s/ Thomas W. Horton
Thomas W. Horton
Senior Vice President and Chief Financial Officer
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Exhibit 12
AMR CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(in millions)
Three Months Ended March 31,
2002 2001
Earnings (loss):
Loss before income taxes $ (863) $ (57)
Add: Total fixed charges (per below) 440 332
Less: Interest capitalized 22 41
Total earnings (loss) $ (445) $ 234
Fixed charges:
Interest $ 160 $ 114
Portion of rental expense
representative of the interest factor 272 212
Amortization of debt expense 8 6
Total fixed charges $ 440 $ 332
Coverage deficiency $ 885 $ 98