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 June 30, 1997.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to
.
Commission file number 1-2691.
American Airlines, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-1502798
(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 - 1,000 shares as of August 13, 1997
The registrant meets the conditions set forth in, and is filing
this form with the reduced disclosure format prescribed by,
General Instructions H(1)(a) and H(1)(b) of Form 10-Q.
2
INDEX
AMERICAN AIRLINES, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations -- Three months ended June 30,
1997 and 1996; Six months ended June 30, 1997 and 1996
Condensed Consolidated Balance Sheet -- June 30, 1997 and December
31, 1996
Condensed Consolidated Statement of Cash Flows -- Six months ended
June 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements -- June 30,
1997
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
3
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In millions)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues
Passenger $3,641 $3,510 $7,031 $6,797
Cargo 172 171 334 331
Other 216 204 414 396
Total operating revenues 4,029 3,885 7,779 7,524
Expenses
Wages, salaries and
benefits 1,281 1,242 2,551 2,476
Aircraft fuel 456 454 959 878
Commissions to agents 312 303 610 599
Depreciation and
amortization 238 224 479 455
Other rentals and
landing fees 200 191 390 374
Maintenance materials and
repairs 185 136 347 270
Food service 171 172 331 326
Aircraft rentals 133 148 265 296
Other operating expenses 609 568 1,204 1,163
Total operating expenses 3,585 3,438 7,136 6,837
Operating Income 444 447 643 687
Other Income (Expense)
Interest income 7 6 14 12
Interest expense (48) (104) (122) (217)
Miscellaneous - net (7) 2 (11) -
(48) (96) (119) (205)
Income From Continuing
Operations Before
Income Taxes 396 351 524 482
Income tax provision 156 138 210 194
Income From Continuing
Operations 240 213 314 288
Income From Discontinued
Operations (less applicable
income taxes) - 61 - 136
Net Earnings $ 240 $ 274 $ 314 $ 424
The accompanying notes are an integral part of these financial statements.
-1-
4
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
June 30, December 31,
1997 1996
(Unaudited) (Note 1)
Assets
Current Assets
Cash $ 8 $ 37
Short-term investments 1,670 1,312
Receivables, net 1,208 1,087
Inventories, net 541 559
Other current assets 541 549
Total current assets 3,968 3,544
Equipment and Property
Flight equipment, net 8,349 8,545
Other equipment and property, net 1,214 1,240
9,563 9,785
Equipment and Property Under Capital Leases
Flight equipment, net 1,658 1,724
Other equipment and property, net 93 92
1,751 1,816
Route acquisition costs, net 959 974
Other assets, net 1,439 1,443
$ 17,680 $ 17,562
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 847 $ 914
Payables to affiliates 1,290 1,410
Accrued liabilities 1,643 1,738
Air traffic liability 2,098 1,889
Current maturities of long-term debt 22 22
Current obligations under capital leases 113 109
Total current liabilities 6,013 6,082
Long-term debt, less current maturities 972 983
Long-term debt due to Parent - 118
Obligations under capital leases, less
current obligations 1,443 1,520
Deferred income taxes 725 680
Other liabilities, deferred gains, deferred
credits and postretirement benefits 3,684 3,651
Stockholder's Equity
Common stock - -
Additional paid-in capital 1,717 1,717
Retained earnings 3,126 2,811
4,843 4,528
$ 17,680 $ 17,562
The accompanying notes are an integral part of these financial
statements.
-2-
5
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Six Months Ended June 30,
1997 1996
Net Cash Provided by Operating Activities $ 798 $1,043
Cash Flow from Investing Activities:
Capital expenditures (313) (204)
Net decrease (increase) in
short-term investments (358) 10
Proceeds from sale of equipment and property 169 156
Net cash used for investing activities (502) (38)
Cash Flow from Financing Activities:
Payments on long-term debt and
capital lease obligations (87) (814)
Funds transferred to affiliates, net (238) (196)
Net cash used for financing activities (325) (1,010)
Net decrease in cash (29) (5)
Cash at beginning of period 37 70
Cash at end of period $ 8 $ 65
Cash Payments For:
Interest $ 132 $ 210
Income taxes 205 281
The accompanying notes are an integral part of these financial
statements.
-3-
6
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, these
financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial
position, results of operations and cash flows for the periods
indicated. Results of operations for the periods presented herein
are not necessarily indicative of results of operations for the
entire year. The balance sheet at December 31, 1996 has been
derived from the audited financial statements at that date. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the American Airlines, Inc.
(American or the Company) Annual Report on Form 10-K for the year
ended December 31, 1996.
2.Accumulated depreciation of owned equipment and property at June
30, 1997 and December 31, 1996, was $5.4 billion and $5.1 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at June 30, 1997 and December 31, 1996, was
$843 million and $792 million, respectively.
3.As discussed in the notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, the Miami International Airport Authority
is currently remediating various environmental conditions at Miami
International Airport (Airport) and funding the remediation costs
through landing fee revenues. Future costs of the remediation
effort may be borne by carriers operating at the Airport, including
American, through increased landing fees. The ultimate resolution
of this matter is not expected to have a significant impact on the
financial position or liquidity of American.
4.On July 2, 1996, AMR Corporation (AMR), the parent company of
American, completed the reorganization of its information
technology businesses known as The SABRE Group into a separate,
wholly-owned subsidiary of AMR known as The SABRE Group Holdings,
Inc. and its direct and indirect subsidiaries (the
"Reorganization"). Prior to the Reorganization, most of The SABRE
Group's business units were divisions of American. As part of the
Reorganization, all of the businesses of The SABRE Group, including
American's SABRE Travel Information Network, SABRE Computer
Services, SABRE Development Services, and SABRE Interactive
divisions (collectively, the Information Services Group), and
certain buildings, equipment, and American's leasehold interest in
certain other buildings used by The SABRE Group were combined in
subsidiaries of American, which were then dividended to AMR.
The results of operations of the Information Services Group have
been reflected in the consolidated statement of operations as
income from discontinued operations for the three months and six
months ended June 30, 1996. The amounts shown are net of income
taxes of $37 million for the three months ended June 30, 1996, and
$82 million for the six months ended June 30, 1996. Revenues from
the operations of the Information Services Group were $368 million
for the three months ended June 30, 1996, and $754 million for the
six months ended June 30, 1996.
5.On May 5, 1997, the members of the Allied Pilots Association
ratified a new labor agreement that was reached with American in
March 1997. The new contract becomes amendable August 31, 2001.
Among other provisions, the agreement granted pilots options to buy
5.75 million shares of AMR stock at $83.375, $10 less than the
average fair market value of the stock on the date of grant, May 5,
1997. The options are immediately exercisable.
-4-
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.On May 7, 1997, American confirmed the structure of its aircraft
acquisition arrangement with Boeing announced in November 1996.
The arrangement includes firm orders for 75 Boeing 737s, 12 Boeing
757s and four Boeing 767-300ERs, with deliveries commencing in 1998
and continuing through 2004. In June 1997, American confirmed an
order for seven Boeing 777-200IGW aircraft, to be delivered in 1999
and 2000. In addition to the firm orders, American obtained
"purchase rights" for additional aircraft. Subject to the
availability of delivery positions, some of which are guaranteed,
American has the right to acquire, at specified prices, new
standard-body aircraft with as little as 15 months prior notice;
wide-bodied acquisitions will require 18 months notice.
Payments for the firm-order aircraft noted above will approximate
$570 million in 1997, $1.0 billion in 1998, $1.3 billion in 1999,
and $1.8 billion in 2000 and thereafter.
-5-
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
For the Six Months Ended June 30, 1997 and 1996
As discussed in Note 4, as of July 2, 1996, AMR completed the
reorganization of The SABRE Group (the "Reorganization"). Thus, the
results of operations of American's Information Services Group have
been reflected in the consolidated statement of operations as income
from discontinued operations for the three months and six months
ended June 30, 1996. Following the Reorganization, American operates
in only one business segment, and, as such, the discussion below
relates only to the operations of what was formerly American's
Airline Group.
American recorded income from continuing operations for the first six
months of 1997 of $314 million. This compares to income from
continuing operations of $288 million for the same period last year.
American's operating income was $643 million for the first six months
of 1997 compared to $687 million for the first six months of 1996.
American's passenger revenues increased by 3.4 percent, $234 million.
American's yield (the average amount one passenger pays to fly one
mile) of 13.36 cents increased by 0.8 percent compared to the same
period in 1996. Domestic yields decreased 0.2 percent from the first
six months of 1996. International yields increased 3.5 percent,
reflecting a 4.4 percent increase in Latin America, a 1.9 percent
increase in Europe and a 1.1 percent increase in the Pacific.
American's traffic or revenue passenger miles (RPMs) increased 2.5
percent to 52.6 billion miles for the six months ended June 30, 1997.
American's capacity or available seat miles (ASMs) increased 0.3
percent to 76.3 billion miles in the first six months of 1997,
primarily as a result of seven additional operating aircraft.
American's domestic traffic increased 2.2 percent on capacity
increases of 0.5 percent and international traffic grew 3.3 percent
on capacity decreases of 0.1 percent. The overall increase in
international traffic was driven by a 7.8 percent increase in traffic
to Latin America on capacity growth of 3.2 percent, partially offset
by a 9.0 percent decrease in Pacific traffic on a capacity decrease
of 5.9 percent.
American's operating expenses increased 4.4 percent, $299 million.
American's Jet Operations cost per ASM increased by 4.0 percent to
9.27 cents. Aircraft fuel expense increased 9.2 percent, $81
million, due primarily to a 7.5 percent increase in American's
average price per gallon including tax. Maintenance materials and
repairs expense increased 28.5 percent, $77 million, due to
additional aircraft check lines added at American's maintenance bases
as a result of the maturing of its fleet. Aircraft rentals decreased
10.5 percent, $31 million, as a result of American's decision to
prepay the cancelable operating leases it had on 12 of its Boeing 767-
300 aircraft during June and July 1996. Following the prepayments,
these aircraft have been accounted for as capital leases and the
related costs included in amortization expense.
Other Income (Expense) decreased 42.0 percent or $86 million.
Interest expense decreased $95 million due primarily to the decline
in the balance of American's intercompany subordinated note with AMR
and the retirement of debt prior to scheduled maturity.
Other
In June 1997, Standard & Poor's raised its corporate credit ratings
and senior debt ratings of AMR Corporation and its subsidiary
American Airlines, Inc. to triple "B" minus from double "B" plus.
The Federal airline passenger excise tax, which was reimposed in the
first quarter of 1997, is scheduled to expire on September 30, 1997.
A replacement tax mechanism will take effect on October 1, 1997.
Over a five year period on a sliding scale, the airline ticket tax
will be reduced from ten percent to 7.5 percent and a $3 per
passenger segment fee will be phased in. Additionally, the fee for
international arrivals and departures will be increased from $6 per
departure to $12 for each arrival and departure and a 7.5 percent tax
will be added on the purchase of frequent flyer miles. The ultimate
impact of the new taxes on American cannot be determined at this
time.
-6-
9
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In January 1985, American announced a new fare category, the "Ultimate
SuperSaver," a discount, advance purchase fare that carried a 25
percent penalty upon cancellation. On December 30, 1985, a class
action lawsuit was filed in Circuit Court, Cook County, Illinois
entitled Johnson vs. American Airlines, Inc. The Johnson plaintiffs
allege that the 10 percent federal excise transportation tax should
have been excluded from the "fare" upon which the 25 percent penalty
was assessed. The case has not been certified as a class action.
Summary judgment was granted in favor of American but subsequently
reversed and vacated by the Illinois Appellate Court. American is
vigorously defending the lawsuit.
American has been sued in two class action cases that have been
consolidated in the Circuit Court of Cook County, Illinois, in
connection with certain changes made to American's AAdvantage frequent
flyer program in May 1988. (Wolens et al v. American Airlines, Inc.,
No. 88 CH 7554, and Tucker v. American Airlines, Inc., No. 89 CH 199.)
In both cases, the plaintiffs seek to represent all persons who joined
the AAdvantage program before May 1988. Although the complaint
originally involved numerous claims, after a January 18, 1995
preemption ruling by the U.S. Supreme Court, only the plaintiffs'
breach of contract claim remains. Currently, the plaintiffs allege
that in May 1988, American implemented changes that limited the number
of seats available to participants traveling on certain awards and
established blackout dates during which no AAdvantage seats would be
available for certain awards and that these changes breached
American's contracts with AAdvantage members. The case has not been
certified as a class action. Although the case has been pending for
numerous years, it still is in a preliminary stage. American is
vigorously defending the lawsuit. Plaintiffs seek money damages for
the alleged breach and attorneys' fees.
In December 1993, American announced that the number of miles
required to claim a certain travel award under American's AAdvantage
frequent flyer program would be increased effective February 1, 1995.
On February 1, 1995, a class action lawsuit entitled Gutterman vs.
American Airlines, Inc., was filed in the Circuit Court of Cook
County, Illinois. The Gutterman plaintiffs claim that this increase
in mileage level violated the terms and conditions of the agreement
between American and AAdvantage members. On February 9, 1995, a
virtually identical class action lawsuit entitled Benway vs. American
Airlines, Inc., was filed in District Court, Dallas County, Texas.
After limited discovery and prior to class certification, a summary
judgment dismissing the Benway case was entered by the Dallas County
court in July 1995. Although American's motion to dismiss the
Gutterman lawsuit was denied, American's motion for summary judgment
is still pending. No class has been certified in the Gutterman
lawsuit and to date only very limited discovery has been undertaken.
American is vigorously defending the lawsuit.
-7-
10
PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
27 Financial Data Schedule.
On April 17, 1997, American filed a report on Form 8-K relative to
the Company's negotiations with the Allied Pilots Association.
-8-
11
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN AIRLINES, INC.
Date: August 13, 1997 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President - Finance and Planning
and Chief Financial Officer
-9-
5
1,000,000
6-MOS
DEC-31-1997
JUN-30-1997
8
1,670
1,215
7
541
3,968
17,562
6,248
17,680
6,013
2,415
0
0
1,717
3,126
17,680
0
7,779
0
7,136
0
0
122
524
210
314
0
0
0
314
0
0
