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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, 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 1-2691.
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, including area code (817) 963-1234
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 July 15, 2002.
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 (b) of Form 10-Q.
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INDEX
AMERICAN AIRLINES, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and six months ended
June 30, 2002 and 2001
Condensed Consolidated Balance Sheets - June 30, 2002 and December
31, 2001
Condensed Consolidated Statements of Cash Flows -- Six months ended
June 30, 2002 and 2001
Notes to Condensed Consolidated Financial Statements - June 30,
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
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Revenues
Passenger $3,747 $4,645 $7,231 $8,580
Cargo 141 188 274 362
Other revenues 222 315 413 584
Total operating revenues 4,110 5,148 7,918 9,526
Expenses
Wages, salaries and benefits 2,017 2,008 3,989 3,640
Aircraft fuel 621 802 1,118 1,472
Depreciation and amortization 299 316 603 594
Other rentals and landing fees 284 298 552 534
Maintenance, materials and
repairs 248 246 478 480
Aircraft rentals 208 218 427 358
Food service 178 217 347 398
Commissions to agents 149 244 300 456
Special charges - 586 - 586
Other operating expenses 737 914 1,457 1,721
Total operating expenses 4,741 5,849 9,271 10,239
Operating Loss (631) (701) (1,353) (713)
Other Income (Expense)
Interest income 18 22 36 44
Interest expense (123) (93) (250) (169)
Interest capitalized 21 35 41 74
Related party interest - net 5 (11) 10 (22)
Miscellaneous - net 4 36 (4) 30
(75) (11) (167) (43)
Loss Before Income Taxes (706) (712) (1,520) (756)
Income tax benefit (220) (257) (492) (267)
Net Loss $(486) $ (455) $(1,028) $(489)
The accompanying notes are an integral part of these financial statements.
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AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
June 30, December 31,
2002 2001
Assets
Current Assets
Cash $ 191 $ 117
Short-term investments 2,352 2,856
Receivables, net 1,530 1,371
Inventories, net 676 752
Deferred income taxes 846 844
Other current assets 179 519
Total current assets 5,774 6,459
Equipment and Property
Flight equipment, net 13,519 13,151
Other equipment and property, net 2,234 2,000
Purchase deposits for flight equipment 607 834
16,360 15,985
Equipment and Property Under Capital Leases
Flight equipment, net 1,372 1,492
Other equipment and property, net 92 95
1,464 1,587
Goodwill 1,252 1,293
Route acquisition costs 829 829
Airport operating and gate lease rights, net 446 459
Other assets 4,228 3,865
$ 30,353 $ 30,477
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 1,478 $ 1,717
Accrued liabilities 2,189 2,017
Air traffic liability 3,059 2,763
Payable to affiliates, net 69 66
Current maturities of long-term debt 255 421
Current obligations under capital leases 119 189
Total current liabilities 7,169 7,173
Long-term debt, less current maturities 7,165 6,530
Obligations under capital leases, less 1,331 1,396
current obligations
Deferred income taxes 1,789 1,465
Postretirement benefits 2,611 2,538
Other liabilities, deferred gains and
deferred credits 5,808 5,896
Stockholder's Equity
Common stock - -
Additional paid-in capital 2,550 2,596
Accumulated other comprehensive loss (70) (145)
Retained earnings 2,000 3,028
4,480 5,479
$ 30,353 $ 30,477
The accompanying notes are an integral part of these financial
statements.
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AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
Six Months Ended June 30,
2002 2001
Net Cash Provided by (Used for) Operating
Activities $ (53) $ 732
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (846) (1,924)
Acquisition of Trans World Airlines, Inc. - (742)
Net decrease in short-term investments 504 352
Proceeds from sale of equipment and property 160 204
Other 36 (6)
Net cash used for investing activities (146) (2,116)
Cash Flow from Financing Activities:
Payments on long-term debt and capital lease
obligations (296) (159)
Proceeds from issuance of long-term debt 612 1,433
Funds transferred between affiliates, net (43) 285
Net cash provided by financing activities 273 1,559
Net increase in cash 74 175
Cash at beginning of period 117 86
Cash at end of period $ 191 $ 261
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 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 and the asset impairment charge as discussed in
footnote 8, 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 and the resulting effect on
the economy and the air transportation industry. In addition, on
April 9, 2001, Trans World Airlines LLC (TWA LLC, 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 LLC are
included in the accompanying condensed consolidated financial
statements for the three and six month periods ended June 30, 2002
whereas for 2001 the results of TWA LLC were included only for the
period April 10, 2001 through June 30, 2001. When utilized in this
report, all references to American Airlines, Inc. include the
operations of TWA LLC since April 10, 2001 (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 American
Airlines, Inc. Annual Report on Form 10-K for the year ended
December 31, 2001 ("2001 Form 10-K").
2.Accumulated depreciation of owned equipment and property at June
30, 2002 and December 31, 2001 was $8.3 billion and $8.2 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at June 30, 2002 and December 31, 2001 was $920
million and $1.0 billion, respectively.
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):
Six Months Ended
June 30, 2001
Operating revenues $ 10,392
Net loss (496)
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 has been named as a potentially
responsible party (PRP) 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 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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AMERICAN AIRLINES, INC.
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 June 30, 2002, the Company had commitments to acquire the
following aircraft: 47 Boeing 737-800s, 11 Boeing 777-200ERs and nine
Boeing 767-300ERs. Deliveries of these aircraft are scheduled to
continue through 2008. Payments for these aircraft are expected to be
approximately $210 million during the remainder of 2002, $890 million
in 2003, $390 million in 2004 and an aggregate of approximately $1.5
billion in 2005 through 2008.
6.During the six month period ended June 30, 2002, American
borrowed approximately $372 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 through 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 $225 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, with a final maturity in 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 the
Company, 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. During the second quarter of 2002, the Company
completed the first step of its impairment analysis related to its
$1.3 billion of goodwill and determined the Company's net book
value to be in excess of the Company's fair market value at January
1, 2002, using American as the reporting unit for purposes of the
fair value determination. As a result, the Company is in the process
of completing the second step of the impairment analysis which will
allocate the newly determined fair value of American to each of its
assets and liabilities. This allocation is expected to be
completed during the third or fourth quarter of 2002 and will
likely result in the Company recording a one-time, non-cash pre-tax
charge of up to $1.3 billion to write-down American's goodwill.
Such charge would be nonoperational in nature and would be
reflected as a cumulative effect of an accounting change in the
consolidated statements of operations.
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AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The following table provides information relating to the Company's
amortized intangible assets as of June 30, 2002 (in millions):
Accumulated Net Book
Cost Amortization Value
Amortized intangible assets:
Airport operating rights $ 449 $ 136 $ 313
Gate lease rights 209 76 133
Total $ 658 $ 212 $ 446
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 and six month period ended June 30, 2002, the Company
recorded amortization expense of approximately $5 million and $13
million, respectively, related to these intangible assets. The
Company expects to record annual amortization expense of
approximately $26 million in each of the next five years related to
these intangible assets.
The pro forma effect of discontinuing amortization of goodwill and
route acquisition costs under SFAS 142 - assuming the Company had
adopted this standard as of January 1, 2001 - results in an adjusted
net loss of approximately $442 million and approximately $470 million,
respectively, for the three and six month periods ended June 30, 2001.
8.In conjunction with the acquisition of TWA, coupled with
revisions to the Company's fleet plan to accelerate the retirement
dates of its Fokker 100 aircraft, during the second quarter of 2001
the Company determined these aircraft were impaired under Statement
of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" (SFAS 121). As a result, during the second quarter of
2001, the Company recorded an asset impairment charge of
approximately $586 million relating to the write-down of the
carrying value of 71 Fokker 100 aircraft and related rotables to
their estimated fair market values which is included in Special
charges on the accompanying consolidated statements of operations.
Management estimated the undiscounted future cash flows utilizing
models used by the Company in making fleet and scheduling
decisions. In determining the fair market value of these aircraft,
the Company considered outside third party appraisals and recent
transactions involving sales of similar aircraft. As a result of
the writedown of these aircraft to fair market value, as well as
the acceleration of the retirement dates and changes in salvage
values, depreciation and amortization will decrease by
approximately $18 million on an annualized basis.
9.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 loss. For the three
months ended June 30, 2002 and 2001, comprehensive loss was $487
million and $457 million, respectively. In addition, for the six
months ended June 30, 2002 and 2001, comprehensive loss was $953
million and $417 million, respectively. The difference between net
loss and comprehensive loss is due primarily to the accounting for
the Company's derivative financial instruments under SFAS 133. In
addition, the six month period ended June 30, 2001 includes the
cumulative effect of the adoption of SFAS 133.
During the second quarter of 2002, the Company discontinued
entering into new foreign exchange currency put option agreements.
The fair value of the Company's remaining foreign currency put
option agreements was not material as of June 30, 2002, and all of
these agreements will expire by September 30, 2002.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
For the Six Months Ended June 30, 2002 and 2001
Summary American's net loss for the six months ended June 30, 2002
was $1,028 million as compared to a net loss of $489 million for the
same period in 2001. American's operating loss for the six months
ended June 30, 2002 was $1,353 million, compared to an operating loss
of $713 million for the same period in 2001. American's 2002 results
continue to be adversely impacted by the September 11, 2001 terrorist
attacks and the resulting effect on the economy and the air
transportation industry. On April 9, 2001, Trans World Airlines LLC
(TWA LLC, 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 LLC are included in the accompanying condensed consolidated
financial statements for the six month period ended June 30, 2002
whereas for 2001 the results of TWA LLC were included only for the
period April 10, 2001 through June 30, 2001. All references to
American Airlines, Inc. include the operations of TWA LLC since April
10, 2001 (collectively, American). In addition, American's 2001
results include: (i) a $586 million charge ($368 million after-tax)
related to the writedown of the carrying value of its Fokker 100
aircraft and related rotables in accordance with SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of" (see footnote 8 to the condensed
consolidated financial statements), and (ii) a $45 million gain ($29
million after-tax) from the settlement of a legal matter related to
the Company's 1999 labor disruption.
Although traffic has continued to increase on significantly reduced
capacity since the events of September 11, 2001, the Company's 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, the geographic distribution of the Company's
network and reduced fares. In total, the Company's revenues decreased
$1,608 million, or 16.9 percent, in 2002 versus the same period in
2001. American's passenger revenues decreased by 15.7 percent, or
$1,349 million in 2002 as compared to the same period in 2001.
American's domestic revenue per available seat mile (RASM) decreased
13.4 percent, to 8.58 cents, on a capacity decrease of 0.4 percent, to
61.3 billion available seat miles (ASMs). International RASM decreased
to 8.67 cents, or 7.7 percent, on a capacity decrease of 14 percent.
The decrease in international RASM was due to a 10.2 percent and 7.9
percent decrease in Latin American and European RASM,respectively,
slightly offset by a 5.6 percent increase in Pacific RASM. The decrease
in international capacity was driven by a 36.4 percent, 15.2 percent and
8.2 percent reduction in Pacific, European and Latin American ASMs,
respectively.
Cargo revenues decreased $88 million, or 24.3 percent, primarily due
to the same reasons as noted above.
Other revenues decreased 29.3 percent, or $171 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.
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RESULTS OF OPERATIONS (Continued)
The Company's operating expenses decreased 9.5 percent, or
approximately $968 million. American's cost per ASM increased by 0.5
percent to 11.03 cents, excluding the impact of the second quarter
2001 asset impairment charge. Wages, salaries and benefits increased
9.6 percent, or $349 million, reflecting (i) a decrease in the average
number of equivalent employees, somewhat offset by higher salaries,
and (ii) increases in the Company's pension and health insurance
costs, the latter reflecting rapidly rising medical care and
prescription drug costs. Aircraft fuel expense decreased 24 percent,
or $354 million, due primarily to a 16.1 percent decrease in the
Company's average price per gallon of fuel and a 6.7 percent decrease
in the Company's fuel consumption. Aircraft rentals increased $69
million, or 19.3 percent, due primarily the addition of TWA aircraft.
Food service decreased 12.8 percent, or $51 million, due primarily to
the Company's reduced operating schedule and change in level of food
service. Commissions to agents decreased 34.2 percent, or $156
million, due primarily to a 15.7 percent decrease in passenger
revenues and commission structure changes implemented in March 2002.
Special charges of $586 million related to the writedown of the
carrying value of the Company's Fokker 100 aircraft and related
rotables during the second quarter of 2001 (see footnote 8 to the
condensed consolidated financial statements). Other operating
expenses decreased 15.3 percent, or $264 million, due primarily to
decreases in contract maintenance work that American performs for
other airlines, and decreases in travel and incidental costs, credit
card and booking fees, advertising and promotion costs, and data
processing expenses, which were partially offset by higher insurance
and security costs.
Other income (expense) increased $124 million due to the following:
Interest income decreased 18.2 percent, or $8 million, due primarily
to decreases in interest rates. Interest expense increased $81
million, or 47.9 percent, resulting primarily from the increase in the
Company's long-term debt. Interest capitalized decreased $33 million,
or 44.6 percent, due primarily to a decrease in purchase deposits for
flight equipment. Related party interest - net increased $32 million
due primarily to higher receivable balances from affiliated entities
versus 2001. Miscellaneous-net decreased $34 million due primarily to
a $45 million gain recorded during the second quarter of 2001 from the
settlement of a legal matter related to the Company's 1999 labor
disruption.
The effective tax rate for the six months ended June 30, 2002 was
impacted by a $57 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.
OTHER INFORMATION
Net cash used for operating activities in the six month period ended
June 30, 2002 was $53 million, a decrease of $785 million over the
same period in 2001, due primarily to an increase in the Company's net
loss. Included in net cash used for operating activities during the
first six months of 2002 was approximately $658 million received by
the Company as a result of the utilization of its 2001 NOL's. Capital
expenditures for the first six months of 2002 were $846 million and
included the acquisition of seven Boeing 757-200s and three Boeing 777-
200ER aircraft. These capital expenditures were financed primarily
through secured mortgage agreements. Proceeds from the sale of
equipment and property of $160 million include the proceeds received
upon delivery of three McDonnell Douglas MD-11 aircraft to FedEx.
As of June 30, 2002, the Company had commitments to acquire the
following aircraft: 47 Boeing 737-800s, 11 Boeing 777-200ERs and nine
Boeing 767-300ERs. Deliveries of these aircraft are scheduled to
continue through 2008. Payments for these aircraft are expected to be
approximately $210 million during the remainder of 2002, $890 million
in 2003, $390 million in 2004 and an aggregate of approximately $1.5
billion in 2005 through 2008.
In June 2002, Standard & Poor's downgraded the credit ratings of
American, and the credit ratings of a number of other major airlines.
The long-term credit ratings of American were removed from Standand &
Poor's Credit Watch with negative implications and were given a
negative outlook. Any additional reductions in American's credit
ratings could result in increased borrowing costs to the Company and
might limit the availability of future financing needs.
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In addition to the Company's approximately $2.5 billion in cash and
short-term investments as of June 30, 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 $40 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, (vi) tax-exempt borrowings for airport facilities, (vii)
securitization of future operating receipts, and (viii) unsecured
borrowings. 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.
Pursuant to the Act, the Government made available to air carriers,
subject to certain conditions, up to $10 billion in federal government
guarantees of certain loans. American did not seek such loan
guarantees.
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 August 17, 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 (APA) contract freezes the number of
ASMs and block hours flown on American's two letter marketing code by
American's regional carrier partners when American pilots are on
furlough (the ASM cap). As AMR Eagle continues to accept previously
ordered regional jets, this ASM cap would be reached sometime in 2002,
necessitating actions to insure compliance with the ASM cap. American
is working with its regional partners to accomplish this. 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 AmericanConnection
carriers, which are independent carriers that provide feed to
American's St. Louis hub. American believes that the combination of
these actions will enable it to comply with this ASM cap through 2002
and for sometime beyond.
In addition, another provision in the current APA contract limits the
total number of regional jets with more than 44 seats flown under the
American code by American's regional carrier partners to 67 aircraft.
Similar to the above, as AMR Eagle continues to accept previously
ordered Bombardier CRJ aircraft, this cap would be reached in early
2003. In order to ensure American remains in compliance with this
provision, AMR Eagle has reached an agreement in principle to dispose
of 14 Embraer 145 aircraft. Ultimately, these airplanes will be
acquired by Trans States Airlines, an AmericanConnection carrier. Trans
States Airlines will operate these aircraft under its two letter airline
code and expects to deploy these aircraft at its St. Louis hub where it
feeds American. The potential transaction still requires the consent of
certain third parties, including the companies financing these aircraft,
and is subject to the negotiation of final documentation.
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 the Company, 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. During the second quarter of
2002, the Company completed the first step of its impairment analysis
related to its $1.3 billion of goodwill and determined the Company's
net book value to be in excess of the Company's fair market value at
January 1, 2002, using American as the reporting unit for purposes of
the fair value determination. As a result, the Company is in the process
of completing the second step of the impairment analysis which will
allocate the newly determined fair value of American to each of its assets
and liabilities. This allocation is expected to be completed during
the third or fourth quarter of 2002 and will likely result in the
Company recording a one-time, non-cash pre-tax charge of up to $1.3
billion to write-down American's goodwill. Such charge would be
nonoperational in nature and would be reflected as a cumulative effect
of an accounting change in the consolidated statements of operations.
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OUTLOOK
Capacity for American is expected to be down approximately two percent
in the third quarter of 2002 compared to last year's third quarter
levels. For the third quarter of 2002, the Company expects traffic to
be about flat as compared to last year's third quarter levels.
Pressure to reduce costs will continue, although the Company will
continue to see higher benefit and security costs, increased insurance
premiums, and greater interest expense. However, the Company expects
to see a slight decrease in fuel prices as compared to the third
quarter of 2001 and the continued decline in commission expense due to
the commission changes implemented earlier in 2002. In total,
American's unit costs, excluding special items, for the third quarter
of 2002 are expected to be down approximately 3.5 percent from last
year's third quarter level. Notwithstanding the expected decrease in
unit costs however, given the revenue pressures seen in the first half
of the year and expected to continue into the third quarter, the
Company expects to incur a sizable loss in the third quarter and a
significant loss for 2002.
In response to these financial challenges, the Company has undertaken
a comprehensive review of its business to better align its cost
structure with the current revenue environment, aimed at improving
productivity, simplifying operations and reducing costs. The Company
has begun to implement certain of these changes, including a fleet
simplification program, adjustments to its operating schedule and
increased airport automation, and will continue to refine its business
throughout the coming months.
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 2001 Form
10-K.
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 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, which has scheduled the
case for oral argument on September 23, 2002. 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 May 17, 2002, the named plaintiffs in Hall, et al. 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 1995 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 plaintiffs seek to certify a nationwide class of
travel agents, but no class has yet been certified. American is
vigorously defending the lawsuit. Trial is set for April 29, 2003. A
final adverse court decision awarding substantial money damages or
placing restrictions on the Company's commission policies or practices
would have an adverse impact on the Company.
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Item 1. Legal Proceedings (Continued)
On April 26, 2002, six travel agencies filed an action in the United
States District Court for the Central District of California against
American, United Air Lines, Delta Air Lines, and Orbitz, LLC, alleging
that American and the other defendants: (i) conspired to prevent
travel agents from acting as effective competitors in the distribution
of airline tickets to passengers in violation of Section 1 of the
Sherman Act; and (ii) conspired to monopolize the distribution of
common carrier air travel between airports in the United States in
violation of Section 2 of the Sherman Act. The named plaintiffs seek
to certify a nationwide class of travel agents, but no class has yet
been certified. American is vigorously defending the lawsuit, which
is styled Albany Travel Co., et al. v. Orbitz, LLC, et al., No. 02-
3459 (ER) (AJW)x. A final adverse court decision awarding substantial
money damages or placing restrictions on the Company's distribution
practices would have an adverse impact on the Company.
On May 13, 2002, the named plaintiffs in Always Travel, et. al. v. Air
Canada, et. al., No. T757-027, pending in the Federal Court of Canada,
Trial Division, Montreal, filed a statement of claim alleging that
between 1995 and the present, American, the other defendant airlines,
and the International Air Transport Association conspired to reduce
commissions paid to Canada-based travel agents in violation of
Section 45 of the Competition Act of Canada. The named plaintiffs
seek 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 or
placing restrictions on the Company's commission policies would have
an adverse impact on the Company.
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.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
3.1 Bylaws of American Airlines, Inc., amended as of April 2, 2002.
12 Computation of ratio of earnings to fixed charges for the three
and six months ended June 30, 2002 and 2001.
Form 8-Ks filed under Item 5 - Other Events
On June 13, 2002, American Airlines, Inc. filed a report on Form 8-
K relating to a press release issued by American to announce the
appointment of Jeffrey C. Campbell as Senior Vice President - Finance
and Planning and Chief Financial Officer of the Company.
On June 19, 2002, American Airlines, Inc. filed a report on Form 8-
K to provide updated monthly guidance on unit cost, fuel, traffic and
capacity for the months of May through August 2002.
Form 8-Ks furnished under Item 9 - Regulation FD Disclosure
On May 31, 2002, American Airlines, Inc. furnished a report on Form
8-K to provide updated monthly guidance on unit cost, fuel, traffic
and capacity for the months of March through July 2002.
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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: July 19, 2002 BY: /s/ Jeffrey C. Campbell
Jeffrey C. Campbell
Senior Vice President - Finance and
Planning and Chief Financial Officer
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Exhibit 3.1
AMERICAN AIRLINES, INC.
BYLAWS
(As amended April 2, 2002)
ARTICLE I
Offices
The registered office of the corporation in the State of
Delaware is to be located in the City of Wilmington, County of New
Castle. The corporation may have other offices within and without
the State of Delaware.
ARTICLE II
Meetings of Stockholders
Section l. Annual Meetings. An annual meeting of
stockholders to elect directors and to take action upon such other
matters as may properly come before the meeting shall be held on
the third Wednesday in May of each year, or on such other day, and
at such time and at such place, within or without the State of
Delaware, as the board of directors or the chairman of the board
may from time to time fix.
Any stockholder wishing to bring a matter before an
annual meeting must notify the secretary of the corporation of
such fact not less than sixty nor more than ninety days before the
date of the meeting. Such notice shall be in writing and shall
set forth the business proposed to be brought before the meeting,
shall identify the stockholder and shall disclose the
stockholder's interest in the proposed business.
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Section 2. Special Meetings. A special meeting of
stockholders shall be called by the secretary upon receipt of a
request in writing of the board of directors, the chairman of the
board or the president. Any such meeting shall be held at the
principal business office of the corporation unless the board
shall name another place therefor, at the time specified by the
body or persons calling such meeting.
Section 3. Nominees For Election As Director.
Nominations for election as director, other than those made by or
at the direction of the board of directors, must be made by timely
notice to the secretary, setting forth as to each nominee the
information required to be included in a proxy statement under the
proxy rules of the Securities and Exchange Commission. If such
election is to occur at an annual meeting of stockholders, notice
shall be timely if it meets the requirements of such proxy rules
for proposals of security holders to be presented at an annual
meeting. If such election is to occur at a special meeting of
stockholders, notice shall be timely if received not less than
ninety days prior to such meeting.
Section 4. Notice of Meetings. Written notice of
each meeting of stockholders shall be given which shall state the
place, date and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by law, such notice shall be mailed,
postage prepaid, to each stockholder entitled to vote at such
meeting, at his address as it appears on the records of the
corporation, not less than ten nor more than sixty days before the
date of the meeting. When a meeting is adjourned to another time
or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the
adjournment is taken, unless the adjournment is for more than
thirty days or a new record date is fixed for the adjourned
meeting, in which case a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the
meeting.
Section 5. Chairman and Secretary at Meetings. At
any meeting of stockholders the chairman of the board, or in his
absence, the president, or if neither such person is available,
then a person designated by the board of directors, shall preside
at and act as chairman of the meeting. The secretary, or in his
absence a person designated by the chairman of the meeting,
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shall act as secretary of the meeting.
Section 6. Proxies. Each stockholder entitled to
vote at a meeting of stockholders may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted
or acted upon after three years from its date, unless the proxy
provides for a longer period.
Section 7. Quorum. At all meetings of the stock
holders the holders of one-third of the number of shares of the
stock issued and outstanding and entitled to vote thereat, present
in person or represented by proxy, shall constitute a quorum
requisite for the election of directors and the transaction of
other business, except as otherwise provided by law or by the
certificate of incorporation or by any resolution of the board of
directors creating any series of Preferred Stock.
If holders of the requisite number of shares to consti
tute a quorum shall not be present in person or represented by
proxy at any meeting of stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall
have the power to adjourn the meeting from time to time until a
quorum shall be present or represented. At any such adjourned
meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the
meeting as originally notified.
Section 8. Voting. At any meeting of stockholders,
except as otherwise provided by law or by the certificate of
incorporation or by any resolution of the board of directors
creating any series of Preferred Stock:
(a) Each holder of record of a share or shares of stock
on the record date for determining stockholders entitled to vote
at such meeting shall be entitled to one vote in person or by
proxy for each share of stock so held.
(b) Directors shall be elected by a plurality of the
votes cast by the holders of Common Stock, present in person or by
proxy.
(c) Each other question properly presented to any
meeting of stockholders shall be decided by a majority of the
votes cast on the question entitled to vote thereon.
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(d) Elections of directors shall be by ballot but the
vote upon any other question shall be by ballot only if so ordered
by the chairman of the meeting or if so requested by stockholders,
present in person or represented by proxy, entitled to vote on the
question and holding at least l0% of the shares so entitled to
vote.
Section 9. Action By Written Consent. Any stock
holder seeking to act by written consent of stockholders shall
notify the secretary in writing of such intent and shall request
the board of directors to fix a record date for determining the
stockholders entitled to vote by consent. The notice shall
specify the actions sought to be taken and, if the election of one
or more individuals as director is sought, shall include as to
each nominee the information required to be included in a proxy
statement under the proxy rules of the Securities and Exchange
Commission. Such record date shall be the fifteenth day following
receipt of such request or such later date as may be specified by
the requesting stockholder.
The date for determining whether an action has been
consented to by the required number of stockholders shall be the
thirty-first day after written consent forms were mailed to
stockholders or, if no such material is required to be mailed, the
thirty-first day following the record date.
Section l0. List of Stockholders. At least ten days
before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alpha
betical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder shall
be prepared. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during
ordinary business hours for a period of at least ten days prior to
the meeting, either at a place within the city where the meetingis
to be held, which place shall be specified in the notice of the meeting,
or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section ll. Judges of Election. Whenever a vote at a
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meeting of stockholders shall be by ballot, or whenever written
consent to action is sought, the proxies and ballots or consents
shall be received and taken charge of, and all questions touching
on the qualification of voters and the validity of proxies and
consents and the acceptance and rejection of votes shall be
decided by two judges of election. In the case of a meeting of
stockholders, such judges of election shall be appointed by the
board of directors before or at the meeting, and if no such
appointment shall have been made, then by the stockholders at the
meeting. In the case of a solicitation of consents, such judges
of election shall be appointed by the board of directors on or
before the record date for determining the stockholders entitled
to vote by consent, and if no such appointment shall have been
made, then by the chairman of the board or the president. If for
any reason either of the judges of election previously appointed
shall fail to attend or refuse or be unable to serve, a judge of
election in place of any so failing to attend or refusing or
unable to serve, shall be appointed by the board of directors,
the stockholders at the meeting, the chairman of the board or the
president.
ARTICLE III
Directors: Number, Election, Etc.
Section l. Number. The board of directors shall
consist of such number of members, not less than three, as the
board of directors may from time to time determine by resolution,
plus such additional persons as the holders of the Preferred Stock
may be entitled from time to time, pursuant to the provisions of
any resolution of the board of directors creating any
series of Preferred Stock, to elect to the board of directors.
Section 2. Election, Term, Vacancies. Directors
shall be elected each year at the annual meeting of stockholders,
except as hereinafter provided, and shall hold office until the
next annual election and until their successors are duly elected
and qualified. Vacancies and newly created directorships result
ing from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, although
less than a quorum.
Section 3. Resignation. Any director may resign at
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any time by giving written notice of such resignation to the board
of directors, the chairman of the board, the president or the
secretary. Any such resignation shall take effect at the time
specified therein or, if no time be specified, upon the receipt
thereof by the board of directors or one of the above-named
officers and, unless specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 4. Removal. Any director may be removed
from office at any time, with or without cause, by a vote of a
majority of a quorum of the stockholders entitled to vote at any
regular meeting or at any special meeting called for the purpose.
Section 5. Fees and Expenses. Directors shall
receive such fees and expenses as the board of directors shall
from time to time prescribe.
ARTICLE IV
Meetings of Directors
Section l. Regular Meetings. Regular meetings of
the board of directors shall be held at the principal office of
the corporation, or at such other place (within or without the
State of Delaware), and at such time, as may from time to time be
prescribed by the board of directors or stockholders. A regular
annual meeting of the board of directors for the election of
officers and the transaction of other business shall be held on the
same day as the annual meeting of the stockholders or on such other
day and at such time and place as the board of directors shall determine.
No notice need be given of any regular meeting.
Section 2. Special Meetings. Special meetings of
the board of directors may be held at such place (within or
without the State of Delaware) and at such time as may from time
to time be determined by the board of directors or as may be
specified in the call and notice of any meeting. Any such meeting
shall be held at the call of the chairman of the board, the
president, a vice president, the secretary, or two or more
directors. Notice of a special meeting of directors shall be
mailed to each director at least three days prior to the meeting
date, provided that in lieu thereof, notice may be given to each
director personally or by telephone, or dispatched by telegraph,
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at least one day prior to the meeting date.
Section 3. Waiver of Notice. In lieu of notice of
meeting, a waiver thereof in writing, signed by the person or
persons entitled to said notice whether before or after the time
stated therein, shall be deemed equivalent thereto. Any director
present in person at a meeting of the board of directors shall be
deemed to have waived notice of the time and place of meeting.
Section 4. Action Without Meeting. Unless otherwise
restricted by the certificate of incorporation, any action
required or permitted to be taken at any meeting of the board of
directors or of any committee thereof may be taken without a
meeting if all members of the board of directors or of such
committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings
of the board of directors or of such committee.
Section 5. Quorum. At all meetings of the board,
one-third of the total number of directors shall constitute a
quorum for the transaction of business. The act of a majority of
the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by law.
If at any meeting there is less than a quorum present, a
majority of those present (or if only one be present, then that
one), may adjourn the meeting from time to time without further
notice other than announced at the meeting until a quorum is
present. At such adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted at
the meeting as originally scheduled.
Section 6. Business Transacted. Unless otherwise
indicated in the notice of meeting or required by law, the
certificate of incorporation or bylaws of the corporation, any and
all business may be transacted at any directors' meeting.
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ARTICLE V
Powers of the Board of Directors
The management of all the property and business of the
corporation and the regulation and government of its affairs shall
be vested in the board of directors. In addition to the powers
and authorities by these bylaws and the certificate of
incorporation expressly conferred on them, the board of directors
may exercise all such powers of the corporation and do all such
lawful acts and things as are not by law, or by the certificate of
incorporation or by these bylaws directed or required to be
exercised or done by the stockholders.
ARTICLE VI
Committees
Section l. Executive Committee. The board of
directors may, by resolution passed by a majority of the whole
board, designate an executive committee, to consist of five or
more members. The chief executive officer plus three other
members of the executive committee shall constitute a quorum.
The executive committee shall have and may exercise all
the powers and authority of the board of directors in the management
of the business and affairs of the corporation, with the exception
of such powers and authority as may be specifically reserved to the
board of directors by law or by resolution adopted by the board of
directors.
Section 2. Audit Committee. The board of directors
may, by resolution passed by a majority of the whole board,
designate an audit committee, to consist of two or more members,
none of the members of which shall be employees or officers of the
corporation. A majority of the members of the audit committee
shall constitute a quorum.
The audit committee shall from time to time review and
approve the selection of independent auditors, the fees to be paid
such auditors, the adequacy of the audit and accounting procedures
of the corporation, and such other matters as may be specifically
delegated to the committee by the board of directors. In this
connection the audit committee shall report periodically to the
board of directors and, at its request, meet with representatives
of the independent auditors and with the financial officers of the
corporation separately or jointly.
Section 3. Compensation/Nominating Committee. The
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board of directors may, by resolution passed by a majority of the
whole board, designate a compensation/nominating committee, to
consist of each member of the board of directors, except that no
member of the compensation/nominating committee may be an employee
or officer of the corporation. A majority of the members of the
compensation/nominating committee shall constitute a quorum.
The compensation/nominating committee shall from time to
time review and approve the management remuneration policies of
the corporation including but not limited to salary rates and
fringe benefits of elected officers, other remuneration plans such
as incentive compensation, deferred compensation and stock option
plans, directors' compensation and benefits and such other matters
as may be specifically delegated to the committee by the board of
directors.
In addition, the compensation/nominating committee shall
make recommendations to the board of directors (i) concerning
suitable candidates for election to the board, (ii) with respect
to assignments to board committees, and (iii) with respect to
promotions, changes and succession among the senior management of
the corporation, and shall perform such other duties as may be
specifically delegated to the committee by the board of directors.
Section 4. Diversity Committee. The board of
directors may, by resolution passed by a majority of the whole
board, designate a diversity committee, to consist of three or
more members. Two or more members of the committee shall
constitute a quorum.
The diversity committee shall from time to time review
the efforts of the Corporation to achieve and maintain a diverse
workforce. The diversity committee shall perform such other
duties as may be specifically delegated to the committee by the
board of directors. In furtherance of its duties, the diversity
committee shall consult with the chief executive officer of the
corporation and such other officers as it deems necessary and
appropriate.
Section 5. Committee Procedure, Seal.
(a) The executive, compensation/nominating, audit and
diversity committees shall keep regular minutes of their meetings,
which shall be reported to the board of directors, and shall fix
their own rules of procedures.
(b) The executive, compensation/nominating, audit and
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diversity committees may each authorize the seal of the corpora
tion to be affixed to all papers which may require it.
(c) In the absence or disqualification of a member of
any committee, the members of that committee present at any
meeting and not disqualified from voting, whether or not consti
tuting a quorum, may unanimously appoint another member of the
board of directors to act at the meeting in the place of such
absent or disqualified member.
Section 6. Special Committees. The board of
directors may, from time to time, by resolution passed by a
majority of the whole board, designate one or more special
committees. Each such committee shall have such duties and may
exercise such powers as are granted to it in the resolution
designating the members thereof. Each such committee shall fix
its own rules of procedure.
ARTICLE VII
Indemnification
Section l. Nature of Indemnity. The corporation
shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was or has
agreed to become a director or officer of the corporation, or is
or was serving or has agreed to serve at the request of the
corporation as a director or officer, of another corporation,
partnership, joint venture, trust or other enterprise, or by
reason of any action alleged to have been taken or omitted in such
capacity, and may indemnify any person who was or is a party or is
threatened to be made a party to such an action by reason of the
fact that he is or was or has agreed to become an employee or
agent of the corporation, or is or was serving or has agreed to
serve at the request of the corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with
such action, suit or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation, and,
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with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful; except that
in the case of an action or suit by or in the right of the
corporation to procure a judgment in its favor (l) such indemnif
ication shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or
settlement of such action or suit, and (2) no indemnification
shall be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court
shall deem proper.
The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
Section 2. Successful Defense. To the extent that a
director, officer, employee or agent of the corporation has been
successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in Section l hereof or in defense
of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 3. Determination That Indemnification Is Proper.
(a) Any indemnification of a director or officer of the
corporation under Section l hereof (unless ordered by a court)
shall be made by the corporation unless a determination is made
that indemnification of the director or officer is not proper in
the circumstances because he has not met the applicable standard
of conduct set forth in Section l hereof. Such determination
shall be made, with respect to a director or officer, (1) by a
majority vote of the directors who are not parties to such action,
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suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by a majority vote of such
directors, even though less than a quorum, or (3) if there are no
such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (4) by the stockholders.
(b) Any indemnification of an employee or agent of the
corporation (who is not also a director or officer of the
corporation) under Section l hereof (unless ordered by a court)
may be made by the corporation upon a determination that
indemnification of the employee or agent is proper in the
circumstances because such person has met the applicable standard
of conduct set forth in Section l hereof. Such determination, in
the case of an employee or agent, may be made (1) in accordance
with the procedures outlined in the second sentence of Section
3(a), or (2) by an officer of the corporation, upon delegation of
such authority by a majority of the Board of Directors.
Section 4. Advance Payment of Expenses. Expenses
(including attorneys' fees) incurred by a director or officer in
defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the
corporation as authorized in this Article. Such expenses
(including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate. The board of directors may
authorize the corporation's counsel to represent a director,
officer, employee or agent in any action, suit or proceeding,
whether or not the corporation is a party to such action, suit or
proceeding.
Section 5. Procedure for Indemnification of Direc
tors or Officers. Any indemnification of a director or officer of
the corporation under Sections l and 2, or advance of costs,
charges and expenses of a director or officer under Section 4 of
this Article, shall be made promptly, and in any event within 60
days, upon the written request of the director or officer. If the
corporation fails to respond within 60 days, then the request for
indemnification shall be
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deemed to be approved. The right to indemnification or advances
as granted by this Article shall be enforceable by the director or
officer in any court of competent jurisdiction if the corporation
denies such request, in whole or in part. Such person's costs and
expenses incurred in connection with successfully establishing his
right to indemnification, in whole or in part, in any such action
shall also be indemnified by the corporation. It shall be a
defense to any such action (other than an action brought to
enforce a claim for the advance of costs, charges and expenses
under Section 4 of this Article where the required undertaking, if
any, has been received by the corporation) that the claimant has
not met the standard of conduct set forth in Section l of this
Article, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including
its board of directors or a committee thereof, its independent
legal counsel, and its stockholders) to have made a determination
prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section l of this
Article, nor the fact that there has been an actual determination
by the corporation (including its board of directors or a
committee thereof, its independent legal counsel, and its
stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard
of conduct.
Section 6. Survival; Preservation of Other Rights.
The foregoing indemnification provisions shall be deemed to be a
contract between the corporation and each director, officer,
employee and agent who serves in such capacity at any time while
these provisions as well as the relevant provisions of the
Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then
existing with respect to any state of facts then or previously
existing or any action, suit, or proceeding previously or
thereafter brought or threatened based in whole or in part upon
any such state of facts. Such a "contract right" may not be modified
retroactively without the consent of such director, officer,
employee or agent.
The indemnification provided by this Article VII shall
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not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 7. Insurance. The corporation shall
purchase and maintain insurance on behalf of any person who is or
was or has agreed to become a director or officer of the corpo
ration, or is or was serving at the request of the corporation as
a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against him and incurred by him or on his behalf in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such
liability under the provisions of this Article, provided that such
insurance is available on acceptable terms, which determination
shall be made by a vote of a majority of the entire board of
directors.
Section 8. Savings Clause. If this Article or any
portion hereof shall be invalidated on any ground by any court of
competent jurisdiction, then the corporation shall nevertheless
indemnify each director or officer and may indemnify each employee
or agent of the corporation as to costs, charges and expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an
action by or in the right of the corporation, to the full extent
permitted by any applicable portion of this Article that shall not
have been invalidated and to the full extent permitted by applicable law.
ARTICLE VIII
Officers
Section l. General. The officers of the corporation
shall be the chairman of the board, a vice-chairman, president,
chief operating officer, one or more vice presidents (including
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executive vice presidents and senior vice presidents), a
secretary, a controller, a treasurer, and such other subordinate
officers as may from time to time be designated and elected by the
board of directors.
Section 2. Other Offices. The chairman of the board
shall be chosen by the board of directors from among their own
number. The other officers of the corporation may or may not be
directors.
Section 3. Term. Officers of the corporation shall
be elected by the board of directors and shall hold their respec
tive offices during the pleasure of the board and any officer may
be removed at any time, with or without cause, by a vote of the
majority of the directors. Each officer shall hold office from
the time of his appointment and qualification until the next
annual election of officers or until his earlier resignation or
removal except that upon election thereof a shorter term may be
designated by the board of directors. Any officer may resign at
any time upon written notice to the corporation.
Section 4. Compensation. The compensation of
officers of the corporation shall be fixed, from time to time, by
the board of directors.
Section 5. Vacancy. In case any office becomes
vacant by death, resignation, retirement, disqualification,
removal from office, or any other cause, the board of directors
may abolish the office (except that of president, secretary and
treasurer), elect an officer to fill such vacancy or allow the
office to remain vacant for such time as the board of directors
deems appropriate.
ARTICLE IX
Duties of Officers
Section l. Chairman of the Board, Vice-Chairman,
President, Chief Operating Officer. The chairman of the board
shall be the chief executive officer of the corporation. He shall
have general supervisory powers over all other officers, employees
and agents of the corporation for the proper performance of their
duties and shall otherwise have the general powers and duties of
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supervision and management usually vested in the chief executive
officer of a corporation. The vice-chairman and chief operating
officer shall perform such duties as shall be assigned to each by
the board of directors or the chairman of the board. The
president shall have the general powers and duties of supervision
and management of the corporation as the chairman shall assign.
The chairman of the board shall preside at and act as chairman of
all meetings of the board of directors. The president shall
preside at any meeting of the board of directors in the event of
the absence of the chairman of the board. The offices of (a)
chairman of the board and president or (b) president and chief
operating officer may be filled by the same individual.
Section 2. Vice Presidents. Each vice president
(including executive vice presidents and senior vice presidents)
shall perform such duties as shall be assigned to him by the board
of directors, the chairman of the board or the president.
Section 3. Secretary. The secretary shall record
all proceedings of the meetings of the corporation, its stock
holders and the board of directors and shall perform such other
duties as shall be assigned to him by the board of directors, the
chairman of the board, or the president. Any part or all of the
duties of the secretary may be delegated to one or more assistant
secretaries.
Section 4. Controller. The controller shall
perform such duties as shall be assigned to him by the chairman of
the board, the president or such vice president as may be
responsible for financial matters. Any or all of the duties of
the controller may be delegated to one or more assistant controllers.
Section 5. Treasurer. The treasurer shall, under
the direction of the chairman of the board, the president or such
vice president as may be responsible for financial matters, have
the custody of the funds and securities of the corporation,
subject to such regulations as may be imposed by the board of
directors. He shall deposit, or have deposited, all monies and
other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board
of directors or as may be designated by the appropriate officers
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pursuant to a resolution of the board of directors. He shall
disburse, or have disbursed, the funds of the corporation as may
be ordered by the board of directors or properly authorized
officers, taking proper vouchers therefor. If required by the
board of directors he shall give the corporation bond in such sum
and in such form and with such security as may be satisfactory to
the board of directors, for the faithful performance of the duties
of his office. He shall perform such other duties as shall be
assigned to him by the board of directors, the chairman of the
board, the president or such vice president as may be responsible
for financial matters. Any or all of the duties of the treasurer
may be delegated to one or more assistant treasurers.
Section 6. Other Officers' Duties. Each other
officer shall perform such duties and have such responsibilities
as may be delegated to him by the superior officer to whom he is
made responsible by designation of the chairman of the board or
the president.
Section 7. Absence or Disability. The board of
directors or the chairman of the board may delegate the powers and
duties of any absent or disabled officer to any other officer or
to any director for the time being. In the event of the absence
or temporary disability of the chairman of the board, the
president shall assume his powers and duties while he is absent or
so disabled.
ARTICLE X
Stock
Section l. Certificates. Certificates of stock of
the corporation shall be signed by, or in the name of the corpo
ration by, the chairman of the board, the president or a vice
president, and by the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation. If such
certificate is countersigned, (l) by a transfer agent other than
the corporation or its employee, or (2) by a registrar other than
the corporation or its employee, then any other signature on the
certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent, or registrar at the
date of issue.
Section 2. Transfers. Shares of stock shall be
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transferable on the books of the corporation by the holder of
record thereof in person or by his attorney upon surrender of such
certificate with an assignment endorsed thereon or attached
thereto duly executed and with such proof of authenticity of
signatures as the corporation may reasonably require. The board
of directors may from time to time appoint such transfer agents or
registrars as it may deem advisable and may define their powers
and duties. Any such transfer agent or registrar need not be an
employee of the corporation.
Section 3. Record Holder. The corporation may treat
the holder of record of any shares of stock as the complete owner
thereof entitled to receive dividends and vote such shares, and
accordingly shall not be bound to recognize any interest in such
shares on the part of any other person, whether or not it shall
have notice thereof.
Section 4. Lost and Damaged Certificates. The
corporation may issue a new certificate of stock to replace a
certificate alleged to have been lost, stolen, destroyed or
mutilated upon such terms and conditions as the board of directors
may from time to time prescribe.
Section 5. Fixing Record Date. In order that the
corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend
or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which
shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other
action.
ARTICLE XI
Miscellaneous
Section l. Fiscal Year. The fiscal year of the
corporation shall begin upon the first day of January and termi-
nate upon the 3lst day of December, in each year.
Section 2. Stockholder Inspection of Books and Records.
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The board of directors from time to time shall determine
whether and to what extent and at what times and places and under
what conditions and regulations the accounts and books of the
corporation, or any of them, shall be open to the inspection of a
stockholder and no stockholder shall have any right to inspect any
account, book or document of the corporation except as conferred
by statute or authorized by resolution of the board of directors.
Section 3. Seal. The corporate seal shall be
circular in form and have inscribed thereon the name of the
corporation and the words "Corporate Seal, Delaware."
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ARTICLE XII
Amendments to Bylaws
Subject to the provisions of any resolution of the board
of directors creating any series of Preferred Stock, the board of
directors shall have power from time to time to make, alter or
repeal bylaws, but any bylaws made by the board of directors may
be altered, amended or repealed by the stockholders at any annual
meeting of stockholders, or at any special meeting provided that
notice of such proposed alteration, amendment or repeal is
included in the notice of such special meeting.
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Exhibit 12
AMERICAN AIRLINES, INC.
Computation of Ratio of Earnings to Fixed Charges
(in millions)
Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
Earnings:
Loss before income taxes $(706) $(712) $(1,520) $(756)
Add: Total fixed charges (per below) 382 381 770 668
Less: Interest capitalized 21 35 41 74
Total loss $(345) $(366) $(791) $(162)
Fixed charges:
Interest, including interest
capitalized $ 123 $ 103 $ 250 $ 190
Portion of rental expense
representative of the
interest factor 258 277 518 476
Amortization of debt expense 1 1 2 2
Total fixed charges $ 382 $ 381 $ 770 $ 668
Coverage deficiency $ 727 $ 747 $1,561 $ 830
Note: In April 2001, the Board of Directors of American approved
the guarantee by American of AMR's existing debt obligations. As
of June 30, 2002, this guarantee covered approximately $634
million of unsecured debt and approximately $573 million of
secured debt. The impact of these unconditional guarantees is not
included in the above computation.
