1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Period Ended September 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,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 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 x 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 October 19,1995
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.
2
INDEX
AMERICAN AIRLINES , INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Information
Consolidated Statement of Operations -- Three months ended
September 30, 1995 and 1994; Nine months ended September 30,
1995 and 1994
Condensed Consolidated Balance Sheet -- September 30, 1995 and
December 31, 1994
Condensed Consolidated Statement of Cash Flows -- Nine months
ended September 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements --
September 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
3
PART 1. FINANCIAL INFORMATION
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In millions)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Revenues
Airline Group:
Passenger $3,513 $3,370 $10,051 $9,665
Cargo 165 162 497 479
Other 158 148 502 443
3,836 3,680 11,050 10,587
Information Services Group 396 348 1,123 1,009
Less: Intergroup revenues (136) (138) (420) (435)
Total operating revenues 4,096 3,890 11,753 11,161
Expenses
Wages, salaries and
benefits 1,311 1,255 3,890 3,758
Aircraft fuel 401 405 1,151 1,160
Commissions to agents 325 329 939 964
Depreciation and
amortization 285 271 859 852
Other rentals and
landing fees 212 196 605 581
Food service 178 170 503 500
Aircraft rentals 150 155 454 467
Maintenance materials and
repairs 130 114 367 341
Other operating expenses 626 524 1,800 1,590
Total operating expenses 3,618 3,419 10,568 10,213
Operating Income 478 471 1,185 948
Other Income (Expense)
Interest income 6 3 17 4
Interest expense (134) (113) (431) (302)
Interest capitalized 3 5 11 16
Miscellaneous - net (3) (8) (16) (32)
(128) (113) (419) (314)
Earnings Before Income Taxes 350 358 766 634
Income tax provision 138 138 306 245
Net Earnings $ 212 $ 220 $ 460 $ 389
The accompanying notes are an integral part of these financial statements.
4
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
September December
30, 31,
1995 1994
(Unaudited) (Note)
Assets
Current Assets
Cash $ 94 $ 13
Short-term investments of affiliates 1,072 744
Receivables, net 1,264 877
Receivables from affiliates 333 493
Inventories, net 534 590
Other current assets 431 385
Total current assets 3,728 3,102
Equipment and Property
Flight equipment, net 9,267 9,132
Purchase deposits for flight equipment 62 105
9,329 9,237
Other equipment and property, net 1,820 1,866
11,149 11,103
Equipment and Property Under Capital Leases
Flight equipment, net 1,298 1,370
Other equipment and property, net 165 172
1,463 1,542
Route acquisition costs, net 1,011 1,032
Other assets, net 1,047 1,037
$ 18,398 $ 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.
5
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
September December
30, 31,
1995 1994
(Unaudited) (Note)
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 862 $ 831
Payables to affiliates 1,465 759
Accrued liabilities 1,752 1,434
Air traffic liability 1,701 1,473
Current maturities of long-term debt 64 49
Current obligations under capital leases 122 110
Total current liabilities 5,966 4,656
Long-term debt, less current maturities 1,331 1,518
Long-term debt due to Parent 1,953 3,196
Obligations under capital leases,
less current obligations 1,857 1,964
Deferred income taxes 463 268
Other liabilities, deferred gains, deferred
credits and postretirement benefits 3,130 2,981
Stockholder's Equity
Common stock - -
Additional paid-in capital 1,699 1,699
Retained earnings 1,999 1,534
3,698 3,233
$ 18,398 $ 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.
6
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Nine Months Ended
September 30,
1995 1994
Net Cash Provided by Operating Activities $1,736 $1,702
Cash Flow from Investing Activities:
Capital expenditures (744) (585)
Net increase in short-term investments (328) (502)
Other 62 12
Net cash used for investing activities (1,010) (1,075)
Cash Flow from Financing Activities:
Proceeds from issuance of long-term debt - 130
Other short-term borrowings - 200
Payments on other short-term borrowings - (200)
Payments on long-term debt and capital
lease obligations (268) (121)
Funds transferred to affiliates, net (377) (664)
Net cash used for financing activities (645) (655)
Net increase (decrease) in cash 81 (28)
Cash at beginning of period 13 55
Cash at end of period $ 94 $ 27
Cash Payments For:
Interest (net of amounts capitalized) $ 411 $ 275
Income taxes 51 26
Financing Activities not Affecting Cash:
Capital lease obligations incurred $ - $ 280
The accompanying notes are an integral part of these
financial statements.
7
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 September 30, 1995, no
receivables were transferred under the terms of the agreement.
4.Accumulated depreciation of owned equipment and property at
September 30, 1995 and December 31, 1994, was $5.6 billion and
$5.2 billion, respectively. Accumulated amortization of
equipment and property under capital leases at September 30,
1995 and December 31, 1994, was $779 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.During 1994, the Company changed its estimate of the usage
patterns of miles awarded by participating companies in
American's AAdvantage frequent flyer program. The positive
impact of the change in estimate on passenger revenues for the
nine months ended September 30, 1994, was $49 million.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the Nine Months Ended September 30, 1995 and 1994
American recorded net earnings for the first nine months of 1995
of $460 million. This compares to net earnings of $389 million
for the same period last year. American's operating income was
$1.19 billion for the first nine months of 1995 compared to $948
million for the first nine months of 1994.
American's passenger revenues increased by 4.0 percent, $386
million during the first nine months of 1995 versus the same
period last year. American's yield (the average amount one
passenger pays to fly one mile) of 12.94 cents decreased by 1.1
percent compared to the same period in 1994. Domestic yields
decreased 2.3 percent from the first nine months of 1994.
International yields increased 1.9 percent over the first nine
months of 1994, due principally to an 8.8 percent increase in
Europe partially offset by a 4.9 percent decrease in Latin
America.
American's traffic or revenue passenger miles (RPMs) increased
5.2 percent to 77.7 billion miles for the nine months ended
September 30, 1995. American's capacity or available seat miles
(ASMs) increased 1.8 percent to 116.5 billion miles in the first
nine months of 1995, primarily as a result of increases in jet
stage length and aircraft productivity. Jet stage length
increased 5.9 percent and aircraft productivity, as measured by
miles flown per aircraft per day, increased 4.6 percent
compared with the first nine months of 1994. American's
domestic traffic increased 3.1 percent on capacity decreases of
1.0 percent and international traffic grew 10.2 percent on
capacity increases of 9.4 percent. The change in international
traffic was driven by a 14.9 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
7.4 percent.
Other Airline Group revenues increased 13.2 percent, $59
million, primarily due to contract maintenance work performed by
American for other airlines.
Information Services Group revenues increased 11.3 percent, $114
million, primarily due to increased booking fee volume, which
was positively impacted by international expansion in Europe,
Latin America and India, booking fee price increases and AMR's
services agreement with Canadian Airlines International, Inc..
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 3.5 percent, $355
million. Passenger Division cost per ASM increased by 0.6
percent to 8.41 cents. Wages, salaries and benefits rose 3.5
percent, $132 million, due primarily to an increase in
provisions for profit sharing and salary adjustments for
existing employees , partially offset by a 1.0 percent reduction
in the average number of equivalent employees. Aircraft fuel
expense decreased 0.8 percent, $9 million, due to a 1.4 percent
decrease in American's average price per gallon. Commissions to
agents decreased 2.6 percent, $25 million, due principally to a
reduction in average rates paid to agents attributable primarily
to the change in commission structure implemented in February
1995, offset by an increase in passenger revenues. Other
operating expenses increased 13.2 percent, $210 million,
primarily due to increased traffic driven expenses and increases
in contract maintenance expenses.
Other Income (Expense) increased 33.4 percent or $105 million.
Interest expense (net of amounts capitalized) increased $134
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 $13 million increase in
interest income attributable to higher average investment
balances and higher average rates.
9
RESULTS OF OPERATIONS (continued)
Other
In the third quarter, the Transport Workers Union (TWU) informed
American that its members had ratified seven of its eight labor
contracts. The TWU and American also reached tentative
agreement on the eighth contract, which covers fleet service
workers. This tentative agreement has been submitted to the
fleet service membership for a vote, with results expected in
late October 1995. In addition to the TWU labor contracts, a
binding arbitration settlement regarding the labor contract
between American and the Association of Professional Flight
Attendants was announced on October 10, 1995. These contracts
include one-time early retirement programs, which will require
American to record a significant charge in the fourth quarter.
In addition, consistent with its Transition Plan, American
continues to rationalize its route network, which may result in
additional charges for the 1995 fourth quarter. At the present
time the amount of these charges cannot be reasonably estimated.
However, while it is expected that these charges will have a
significant impact on fourth quarter results of operations, they
are not expected to have a significant impact on the financial
position or liquidity of American.
10
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.
On February 10, 1995, American capped travel agency commissions
for one-way and round trip domestic tickets at $25 and $50,
respectively. Immediately thereafter, numerous travel agencies,
and two travel agency trade association groups filed class action
lawsuits against American and other major air carriers
(Continental, Delta, Northwest, United, USAir and TWA) that had
independently imposed similar limits on travel agency
commissions. The suits were transferred to the United States
District Court for the District of Minnesota, and consolidated as
a multi-district litigation captioned In Re: Airline Travel
Agency Commission Antitrust Litigation. The plaintiffs assert
that the airline defendants conspired to reduce travel agency
commissions and to monopolize air travel in violation of sections
1 and 2 of the Sherman Act. The case has been certified as a
class action on behalf of approximately 40,000 domestic travel
agencies and two travel agency trade associations. In June 1995
after extensive, expedited discovery, the travel agents moved for
a preliminary injunction to enjoin the commission caps, and the
defendants simultaneously moved for summary judgment. On August
31, 1995, Judge Rosenbaum denied both motions. Pre-trial
activities against the defendants, including American, are
continuing. American is vigorously defending the lawsuit.
11
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 September 30,1995.
On September 28, 1995, American filed a report on Form 8-K
relative to the status of the Company's labor negotiations with
the Transport Workers Union.
On October 12, 1995 American filed a report on Form 8-K relative
to the status of the Company's labor negotiations with the
Transport Workers Union, as well as the Company's labor
negotiations with the Association of Professional Flight
Attendants.
12
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: October 19, 1995 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President and Chief
Financial Officer
EXHIBIT 12
13
AMERICAN AIRLINES, INC.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in millions)
Nine Months
Ended September
30,
1995 1994
Earnings:
Earnings before income taxes $ 766 $ 634
Add: Total fixed charges
(per below) 874 740
Less: Interest capitalized
capitalized (11) (16)
Total earnings $1,629 $1,358
Fixed charges:
Interest $ 431 $ 302
Portion of rental expense
representative of the
interest factor 441 435
Amortization of debt expense 2 3
Total fixed charges $ 874 $ 740
Ratio of earnings to
fixed charges 1.86 1.84
5
1,000,000
9-MOS
DEC-31-1995
SEP-30-1995
94
1072
1610
13
534
3728
18975
6363
18398
5966
0
1699
0
0
1999
18398
0
11753
0
10568
0
0
431
766
306
460
0
0
0
460
0
0
