1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Period Ended June 30, 1995.
[ ]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 periods that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No .
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date.
Common Stock, $1 par value - 1,000 as of August 7,1995
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.
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INDEX
AMERICAN AIRLINES , INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Information
Consolidated Statement of Operations -- Three months ended
June 30, 1995 and 1994; Six months ended June 30, 1995 and
1994
Condensed Consolidated Balance Sheet -- June 30, 1995 and
December 31, 1994
Condensed Consolidated Statement of Cash Flows -- Six months
ended June 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements -- June
30, 1995
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
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PART 1. FINANCIAL INFORMATION
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In millions)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Revenues
Airline Group:
Passenger $3,395 $3,267 $6,538 $6,295
Cargo 176 163 332 317
Other 186 153 344 295
3,757 3,583 7,214 6,907
Information Services Group 363 328 727 661
Less: Intergroup revenues (142) (148) (284) (297)
Total operating revenues 3,978 3,763 7,657 7,271
Expenses
Wages, salaries and
benefits 1,316 1,262 2,579 2,503
Aircraft fuel 385 373 750 755
Commissions to agents 307 324 614 635
Depreciation and
amortization 287 292 574 581
Other rentals and
landing fees 198 192 393 385
Food service 167 169 325 330
Aircraft rentals 151 155 304 312
Maintenance materials
and repairs 119 113 237 227
Other operating expenses 592 510 1,174 1,066
Total operating expenses 3,522 3,390 6,950 6,794
Operating Income 456 373 707 477
Other Income (Expense)
Interest income 6 - 11 1
Interest expense (148) (92) (297) (189)
Interest capitalized 4 5 8 11
Miscellaneous - net (2) (15) (13) (24)
(140) (102) (291) (201)
Earnings Before Income Taxes 316 271 416 276
Income tax provision 124 99 168 107
Net Earnings $ 192 $ 172 $ 248 $ 169
The accompanying notes are an integral part of these financial statements.
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AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
June 30, December
31,
1995 1994
(Unaudited) (Note)
Assets
Current Assets
Cash $ 49 $ 13
Short-term investments of affiliates 800 744
Receivables, net 1,161 877
Receivables from affiliates 321 493
Inventories, net 536 590
Other current assets 448 385
Total current assets 3,315 3,102
Equipment and Property
Flight equipment, net 9,385 9,132
Purchase deposits for flight equipment 29 105
9,414 9,237
Other equipment and property, net 1,851 1,866
11,265 11,103
Equipment and Property Under Capital Leases
Flight equipment, net 1,323 1,370
Other equipment and property, net 167 172
1,490 1,542
Route acquisition costs, net 1,018 1,032
Other assets, net 1,062 1,037
$ 18,150 $ 17,816
Note: The balance sheet at December 31, 1994 has been derived
from the audited financial statements at that date but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
The accompanying notes are an integral part of these financial
statements.
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5
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
June 30, December
31,
1995 1994
(Unaudited) (Note)
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 835 $ 831
Payables to affiliates 1,129 759
Accrued liabilities 1,667 1,434
Air traffic liability 1,666 1,473
Current maturities of long-term debt 52 49
Current obligations under capital leases 141 110
Total current liabilities 5,490 4,656
Long-term debt, less current maturities 1,478 1,518
Long-term debt due to Parent 2,406 3,196
Obligations under capital leases,less
currrent obligations 1,934 1,964
Deferred income taxes 327 268
Other liabilities, deferred gains, deferred
credits and postretirement benefits 3,030 2,981
Stockholder's Equity
Common stock - -
Additional paid-in capital 1,699 1,699
Retained earnings 1,786 1,534
3,485 3,233
$ 18,150 $ 17,816
Note: The balance sheet at December 31, 1994 has been derived
from the audited financial statements at that date but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
The accompanying notes are an integral part of these financial
statements.
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6
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Six Months Ended June
30,
1995 1994
Net Cash Provided by Operating Activities $ 991 $1,035
Cash Flow from Investing Activities:
Capital expenditures (626) (486)
Net increase in short-term investments (56) (32)
Other 61 9
Net cash used for investing activities (621) (509)
Cash Flow from Financing Activities:
Proceeds from issuance of long-term debt - 93
Other short-term borrowings - 200
Payments on other short-term borrowings - (200)
Payments on long-term debt and capital lease
obligations (86) (45)
Funds transferred to affiliates, net (248) (570)
Net cash used for financing activities (334) (522)
Net increase in cash 36 4
Cash at beginning of period 13 55
Cash at end of period $ 49 $ 59
Cash Payments For:
Interest (net of amounts capitalized) $ 270 $ 172
Income taxes 40 2
Financing Activities not Affecting Cash:
Capital lease obligations incurred $ - $ 190
The accompanying notes are an integral part of these
financial statements.
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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. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the American
Airlines, Inc. annual report on Form 10-K for the year ended
December 31, 1994.
2.Certain amounts from 1994 have been reclassified to conform
with the 1995 presentation, including cash flows resulting
from certain transactions with affiliates.
3.In July 1991, American entered into a five-year agreement
whereby American transfers, on a continuing basis and with
recourse to the receivables, an undivided interest in a
designated pool of receivables. Undivided interests in new
receivables are transferred daily as collections reduce
previously transferred receivables. At December 31, 1994,
receivables are presented net of approximately $112 million of
such transferred receivables. At June 30, 1995, no
receivables were transferred under the terms of the agreement.
4.Accumulated depreciation of owned equipment and property at
June 30, 1995 and December 31, 1994, was $5.4 billion and $5.2
billion, respectively. Accumulated amortization of equipment
and property under capital leases at June 30, 1995 and
December 31, 1994, was $862 million and $823 million,
respectively.
5.In April 1995, American announced an agreement to sell 12 of
its McDonnell Douglas MD-11 aircraft to Federal Express
Corporation (FedEx), with delivery of the aircraft between
1996 and 1999. In addition, American has the option to sell
its remaining seven MD-11 aircraft to FedEx with deliveries
between 2000 and 2002. At the same time the two companies
signed a separate six-year maintenance contract under the
terms of which American will perform work on FedEx's aircraft
fleet.
6.Included in Passenger Revenues for the three and six months
ended June 30, 1994, is a favorable adjustment of $35 million
produced by a change in the Company's estimate of the usage
patterns of miles awarded by participating companies in
American's AAdvantage frequent flyer program.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the Six Months Ended June 30, 1995 and 1994
American recorded net earnings for the first six months of 1995
of $248 million. This compares to a net earnings of $169
million for the same period last year. American's operating
income was $707 million for the first six months of 1995
compared to $477 million for the first six months of 1994.
American's passenger revenues increased by 3.9 percent, $243
million during the first six months of 1995 versus the same
period last year. American's yield (the average amount one
passenger pays to fly one mile) of 13.12 cents decreased by 2.4
percent compared to the same period in 1994. Domestic yields
decreased 4.2 percent from the first six months of 1994.
International yields increased 2.3 percent over the first six
months of 1994, due principally to a 10.1 percent increase in
Europe partially offset by a 4.6 percent decrease in Latin
America.
American's traffic or revenue passenger miles (RPMs) increased
6.5 percent to 49.8 billion miles for the six months ended June
30, 1995. American's capacity or available seat miles (ASMs)
increased 2.0 percent to 76.1 billion miles in the first six
months of 1995, primarily as a result of increases in jet stage
length and aircraft productivity. Jet stage length increased
8.4 percent and aircraft productivity, as measured by miles
flown per aircraft per day, increased 5.5 percent compared with
the first six months of 1994. American's domestic traffic
increased 5.2 percent on capacity decreases of 0.7 percent and
international traffic grew 9.7 percent on capacity increases of
9.1 percent. The change in international traffic was driven by
a 13.6 percent increase in traffic to Latin America on capacity
growth of 12.4 percent, and a 7.1 percent increase in traffic to
Europe on a capacity increase of 6.7 percent.
Other Airline Group revenues increased 16.6 percent, $49
million, primarily due to contract maintenance work performed by
American for other airlines.
Information Services Group revenues increased 10.0 percent, $66
million, primarily due to increased booking fee volume, which
was positively impacted by international expansion in Europe,
Latin America and India, and increased sales of premium priced
products.
On April 29, 1995 a hailstorm at American's Dallas/Fort Worth
hub temporarily disabled approximately ten percent of American's
fleet, forcing American to reduce scheduled service during the
entire month of May. This adversely impacted the carrier's
revenue and cost performance. The impact of the hailstorm
reduced American's second quarter net income by approximately
$17 million.
American's operating expenses increased 2.3 percent, $156
million. Passenger Division cost per ASM increased by 0.5
percent to 8.46 cents. Wages, salaries and benefits rose 3.0
percent, $76 million, due primarily to provisions for profit
sharing and salary adjustments for existing employees ,
partially offset by a 2.0 percent reduction in the average
number of equivalent employees. Aircraft fuel expense decreased
0.7 percent, $5 million, due to a 1.3 percent decrease in
American's average price per gallon partially offset by a 0.7
percent increase in gallons consumed by American. Commissions
to agents decreased 3.3 percent, $21 million, due principally to
a lower percentage of revenue subject to agent commissions
combined with a reduction in average rates paid to agents
attributable primarily to the change in commission structure
implemented in February 1995. Other operating expenses,
consisting of aircraft rentals, other rentals and landing fees,
food service costs, maintenance costs and other miscellaneous
operating expenses increased 10.1 percent, $108 million,
primarily due to increases in contract maintenance expenses and
increases in landing fees at certain locations.
Other Income (Expense) increased 44.8 percent or $90 million.
Interest expense (net of amounts capitalized) increased $111
million due primarily to the effect of rising interest rates on
floating rate debt and interest rate swap agreements and a
change in the terms of the subordinated note agreement with AMR.
Effective September 30, 1994, the subordinated promissory note
bears interest based on the weighted average rate on AMR's long-
term debt and preferred stock. Prior to September 30, 1994,
interest on the subordinated note was based on the London
Interbank Offered Rate (LIBOR). The increase in interest
expense was partially offset by a $10 million increase in
interest income attributable to higher average investment
balances and higher average rates.
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PART II
Item 1. Legal Proceedings
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. The complaints allege that, on that date, American
implemented changes that limited the number of seats available to
participants traveling on certain awards and established holiday
blackout dates during which no AAdvantage seats would be
available for certain awards. The plaintiffs allege that these
changes breached American's contracts with AAdvantage members and
were in violation of the Illinois Consumer Fraud and Deceptive
Business Practice Act (Consumer Fraud Act). Plaintiffs seek
money damages of an unspecified sum, punitive damages, costs,
attorneys fees and an injunction preventing the Company from
making any future changes that would reduce the value of
AAdvantage benefits. American moved to dismiss both complaints,
asserting that the claims are preempted by the Federal Aviation
Act and barred by the Commerce Clause of the U.S. Constitution.
The trial court denied American's preemption motions, but
certified its decision for interlocutory appeal. In December
1990, the Illinois Appellate Court held that plaintiffs' claims
for an injunction are preempted by the Federal Aviation Act, but
that plaintiffs' claims for money damages could proceed. On
March 12, 1992, the Illinois Supreme Court affirmed the decision
of the Appellate Court. American sought a writ of certiorari
from the U.S. Supreme Court; and on October 5, 1992, that Court
vacated the decision of the Illinois Supreme Court and remanded
the cases for reconsideration in light of the U.S. Supreme
Court's decision in Morales v. TWA, et al, which interpreted the
preemption provisions of the Federal Aviation Act very broadly.
On December 16, 1993, the Illinois Supreme Court rendered its
decision on remand, holding that plaintiffs' claims seeking an
injunction were preempted, but that identical claims for
compensatory and punitive damages were not preempted. On
February 8, 1994, American filed petition for a writ of
certiorari in the U.S. Supreme Court. The Illinois Supreme Court
granted American's motion to stay the state court proceeding
pending disposition of American's petition in the U.S. Supreme
Court. The matter was argued before the U.S. Supreme Court on
November 1, 1994, and on January 18, 1995, the U.S. Supreme Court
issued its opinion ending a portion of the suit against American.
The U.S. Supreme Court held that a) plaintiffs' claim for
violation of the Illinois Consumer Fraud Act was preempted by
federal law -- entirely ending that part of the case and
eliminating plaintiffs' claim for punitive damages; and b)
certain breach of contract claims would not be preempted by
federal law. The Court did not determine, however, whether the
contract claims asserted by the plaintiffs in Wolens were
preempted, and therefore remanded the case to the state court for
further proceedings. In the event that the plaintiffs' breach of
contract claim is eventually permitted to proceed in the state
court, American intends to vigorously defend the case.
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PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
Statement re: computation of ratio of earnings to fixed
charges
The Company filed the following reports on Form 8-K during the
three months ended June 30, 1995.
On June 2, 1995 the Company filed Exhibit 12 computation
of ratio of earnings to fixed
charges
On June 2, 1995 the Company filed Amended Bylaws of
American Airlines, Inc.
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Signatures
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 10, 1995 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President and Chief
Financial Officer
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12
Exhibit 12
AMERICAN AIRLINES, INC.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in millions)
Six Months
Ended June
30,
1995 1994
Earnings:
Earnings before income $416 $276
taxes
Add: Total fixed 591 482
charges (per below)
Less: Interest 8 11
capitalized
Total earnings $999 $747
Fixed charges:
Interest $297 $189
Portion of rental
expense 292 291
representative of
the interest factor
Amortization of debt 2 2
expense
Total fixed charges $591 $482
Ratio of earnings to 1.69 1.55
fixed charges
10
5
1,000,000
6-MOS
DEC-31-1995
JUN-30-1995
49
800
1,495
13
536
3,315
18,999
6,244
18,150
5,490
0
1,699
0
0
1,786
18,150
0
7,657
0
6,950
0
0
297
416
168
248
0
0
0
248
0
0
