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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For fiscal year ended December 31, 1994.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission file number 1-2691.
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AMERICAN AIRLINES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-1502798
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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5-1/4% Subordinated Debentures due 1998 New York Stock Exchange
6-1/4% Subordinated Debentures due 1996 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 045
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
American Airlines, Inc. is a wholly-owned subsidiary of AMR Corporation, and
there is no market for the registrant's common stock. As of March 1, 1995,
1,000 shares of the registrant's common stock were outstanding.
The registrant meets the conditions set forth in, and is filing this form with
the reduced disclosure format prescribed by, General Instructions J(1)(a) and
J(1)(b) of Form 10-K.
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PART I
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ITEM 1. BUSINESS
American Airlines, Inc. (American or the Company), the principal subsidiary of
AMR Corporation (AMR), was founded in 1934. For financial reporting purposes,
American's operations fall within two major lines of business: the Air
Transportation Group and the Information Services Group.
AIR TRANSPORTATION GROUP
The Air Transportation Group consists primarily of American's Passenger and
Cargo divisions.
AMERICAN'S PASSENGER DIVISION is one of the largest scheduled passenger
airlines in the world. At the end of 1994, American provided scheduled jet
service to more than 170 destinations, primarily throughout North America, the
Caribbean, Latin America, Europe and the Pacific.
AMERICAN'S CARGO DIVISION is one of the largest scheduled air freight carriers
in the world. The Cargo Division provides a full range of freight and mail
services to shippers throughout the airline's system. In addition, through
cooperative agreements with other carriers, it has the ability to transport
shipments to virtually any country in the world.
INFORMATION SERVICES GROUP
The Information Services Group consists of three divisions of American: SABRE
Travel Information Network (STIN), SABRE Computer Services (SCS) , SABRE
Development Services (SDS) and SABRE Interactive.
STIN markets SABRE -- one of the largest privately owned, real-time computer
systems in the world -- and provides travel distribution and information
services to more than 28,000 travel agencies in 74 countries on six continents.
SCS manages and maintains AMR's technology infrastructure. SCS provides
planning, installation and operation of data centers, voice and data
communications networks and hardware, as well as technology and architectural
planning to other AMR units and external customers.
SDS provides decision support systems, application software packages, systems
development and consulting services to other AMR units and to external
companies in the transportation, travel and other industries worldwide.
SABRE INTERACTIVE is a unit recently formed to investigate opportunities for
consumer distribution via personal computer, CD-ROM, interactive television,
cable and other media.
These business units and certain other units of AMR form The SABRE Group, one
of AMR's three operating units.
In March 1995, AMR announced the results of a six-month study of the Air
Transportation Group's administrative functions. The Company identified $93
million in annual cost savings and began implementing organizational changes
which are expected to yield additional cost reductions. Such organizational
changes will not materially impact the Company's business segment financial
reporting.
Additional information regarding business segments is included in Note 12 to
the consolidated financial statements.
ROUTES AND COMPETITION
AIR TRANSPORTATION Service over almost all of American's routes is highly
competitive. Currently, any carrier deemed fit by the U.S. Department of
Transportation (DOT) is free to operate scheduled passenger service between any
two points within the U.S. and its possessions. On most of its routes,
American competes with at least one, and usually more than one, major domestic
airline including: America West Airlines, Continental Airlines, Delta Air
Lines, Northwest Airlines, Southwest Airlines, Trans World Airlines, United
Airlines, and USAir. American also competes with national, regional,
all-cargo, and charter carriers and, particularly on shorter segments, ground
transportation.
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Most major air carriers have developed hub-and-spoke systems and schedule
patterns in an effort to maximize the revenue potential of their service.
American operates six hubs: Dallas/Fort Worth, Chicago O'Hare, Miami,
Nashville, Raleigh/Durham and San Juan, Puerto Rico. In January 1995, American
announced schedule reductions for 1995 which will end the airline's hub
operations at Raleigh/Durham. Delta Air Lines and United Airlines have large
hub operations at American's Dallas/Fort Worth and Chicago O'Hare hubs,
respectively.
The American Eagle carriers owned by AMR Eagle, an AMR subsidiary,
increase the number of markets AMR's Air Transportation Group serves by
providing connections to American at its hubs and certain other major airports.
The American Eagle carriers -- Simmons Airlines, Inc., Flagship Airlines, Inc.,
Wings West Airlines, Inc. and Executive Airlines, Inc. -- serve smaller markets
through Dallas/Fort Worth, Chicago, Miami, Nashville, San Juan, Los Angeles and
New York John F. Kennedy International Airport. American's competitors also
own or have marketing agreements with regional carriers which provide service
at their major hubs.
In addition to its extensive domestic service, American provides service
to and from cities in various other countries, primarily across North, Central
and South America and Europe. In 1991, American added service to 20 cities in
15 countries in Latin America with the acquisition of route authorities from
Eastern Air Lines. In 1992, American added service from several U.S. gateway
cities to London's Heathrow Airport with the acquisition of Trans World
Airlines' route authorities. American's operating revenues from foreign
operations were approximately $4.3 billion in 1994, $3.9 billion in 1993 and
$3.7 billion in 1992. Additional information about the Company's foreign
operations is included in Note 11 to the consolidated financial statements.
Competition in international markets is generally subject to more
extensive government regulation than domestic markets. In these markets,
American competes with foreign-investor owned carriers and national flag
carriers and U.S. carriers that have been granted authority to provide
scheduled passenger and cargo service between the U.S. and various overseas
locations. American's operating authority in these markets is subject to
aviation agreements between the U.S. and the respective countries, and in some
cases, fares and schedules require the approval of the DOT and the relevant
foreign governments. Because international air transportation is governed by
bilateral or other agreements between the U.S. and the foreign country or
countries involved, changes in U.S. or foreign government aviation policy could
result in the alteration or termination of such agreements, diminish the value
of such route authorities, or otherwise affect American's international
operations. Bilateral relations between the U.S. and various foreign countries
served by American are currently being renegotiated.
On all of its routes, American's pricing decisions are affected by
competition from other airlines, some of which have cost structures
significantly lower than American's and can therefore operate profitably at
lower fare levels. American and its principal competitors use inventory and
yield management systems that permit them to vary the number of discount seats
offered on each flight in an effort to maximize revenues.
American believes that it has several advantages relative to its
competition. Its fleet is young, efficient and quiet. It has a comprehensive
domestic and international route structure, anchored by efficient hubs, which
permit it to take full advantage of whatever traffic growth occurs. The
Company believes American's AAdvantage frequent flyer program, which is the
largest program in the industry, and its superior service also give it a
competitive advantage.
The major domestic carriers have some advantage over foreign competitors
in their ability to generate traffic from their extensive domestic route
systems. In many cases, however, U.S. carriers are limited in their rights to
carry passengers beyond designated gateway cities in foreign countries. Some
of American's foreign competitors are owned and subsidized by foreign
governments. To improve their access to each others' markets, various U.S. and
foreign carriers - - including American -- have made substantial equity
investments in, or established marketing relationships with, other carriers.
COMPUTER RESERVATION SYSTEMS The complexity of the various schedules and
fares offered by air carriers has fostered the development of electronic
distribution systems. Travel agents and other subscribers access travel
information and book airline, hotel and car rental reservations and issue
airline tickets using these
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systems. American developed the SABRE computer reservation system (CRS), which
is one of the largest CRSs in the world. Competition among the CRS vendors is
strong. Services similar to those offered through SABRE are offered by several
air carriers and other companies in the United States and abroad.
The SABRE CRS has several advantages relative to its competition.
SABRE ranks first in market share among travel agents in the U.S. The SABRE
CRS is furthering its expansion into international markets and continues to be
in the forefront of technological innovation in the CRS industry.
REGULATION
GENERAL The Airline Deregulation Act of 1978 (Act) and various other statutes
amending the Act, eliminated most domestic economic regulation of passenger and
freight transportation. However, the DOT and the Federal Aviation
Administration (FAA) still exercise certain regulatory authority over air
carriers under the Federal Aviation Act of 1958, as amended. The DOT maintains
jurisdiction over international route authorities and certain consumer
protection matters, such as advertising, denied boarding compensation, baggage
liability, and computer reservations systems. The DOT issued certain rules
governing the CRS industry which became effective on December 7, 1992, and
expire on December 31, 1997.
The FAA regulates flying operations generally, including establishing
personnel, aircraft and security standards. In addition, the FAA has
implemented a number of requirements that the Air Transportation Group is
incorporating into its maintenance program. These matters relate to, among
other things, inspection and maintenance of aging aircraft, corrosion control,
collision avoidance and windshear detection. Based on its current
implementation schedule, the Air Transportation Group expects to be in
compliance with the applicable requirements within the required time periods.
The U.S. Department of Justice has jurisdiction over airline antitrust
matters. The U.S. Postal Service has jurisdiction over certain aspects of the
transportation of mail and related services. Labor relations in the air
transportation industry are regulated under the Railway Labor Act, which vests
in the National Mediation Board certain regulatory powers with respect to
disputes between airlines and labor unions arising under collective bargaining
agreements.
FARES Airlines are permitted to establish their own domestic fares without
governmental regulation, and the industry is characterized by substantial price
competition. The DOT maintains authority over international fares, rates and
charges. International fares and rates are also subject to the jurisdiction of
the governments of the foreign countries which American serves. While air
carriers are required to file and adhere to international fare and rate
tariffs, many international markets are characterized by substantial
commissions, overrides, and discounts to travel agents, brokers and
wholesalers.
Fare discounting by competitors has historically had a negative effect
on American's financial results because American is generally required to match
competitors' fares to maintain passenger traffic. During recent years, a
number of new low-cost airlines have entered the domestic market and several
major airlines have begun to implement efforts to lower their cost structures.
Further fare reductions, domestic and international, may occur in the future.
If fare reductions are not offset by increases in passenger traffic or changes
in the mix of traffic that improves yields, American's operating results will
be negatively impacted.
AIRPORT ACCESS In 1968, the FAA issued a rule designating New York John F.
Kennedy, New York LaGuardia, Washington National, Chicago O'Hare and Newark
airports as high density traffic airports. Newark was subsequently removed
from the high-density airport classification. The rule adopted hourly take-off
and landing slot allocations for each of these airports. In 1993, the FAA
granted a permanent rule change allowing each commuter operator at O'Hare to
use 50 percent of its slots for jets having not more than 110 seats. Currently,
the FAA permits the purchasing, selling, leasing and trading of these slots by
airlines and others, subject to certain restrictions. Certain foreign
airports, including London Heathrow, a major European destination for American,
also have slot allocations.
American currently has sufficient slot authorizations to operate its
existing flights and has generally been able to obtain slots to expand its
operations and change its schedules. There is no assurance, however, that
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American will be able to obtain slots for these purposes in the future,
because, among other factors, slot allocations are subject to changes in
government policies.
ENVIRONMENTAL MATTERS The Company is subject to various laws and government
regulations concerning environmental matters and employee safety and health in
the U.S. and other countries. U.S. federal laws that have a particular impact
on the Company include the Airport Noise and Capacity Act of 1990 (ANCA), the
Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act,
the Safe Drinking Water Act, and the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or the Superfund Act). The Company is
also subject to the oversight of the Occupational Safety and Health
Administration (OSHA) concerning employee safety and health matters. The U.S.
Environmental Protection Agency (EPA), OSHA, and other federal agencies have
been authorized to promulgate regulations that have an impact on the Company's
operations. In addition to these federal activities, various states have been
delegated certain authorities under the aforementioned federal statutes. Many
state and local governments have adopted environmental and employee safety and
health laws and regulations, some of which are similar to federal requirements.
As a part of its continuing safety, health and environmental program, the
Company has maintained compliance with such requirements without any material
adverse effect on its business.
For purposes of noise standards, jet aircraft are rated by categories or
"stages." The ANCA requires the phase- out by December 31, 1999, of Stage II
aircraft operations, subject to certain exceptions. Under final regulations
issued by the FAA in 1991, air carriers are required to reduce, by modification
or retirement, the number of Stage II aircraft in their fleets 25 percent by
December 31, 1994; 50 percent by December 31, 1996; 75 percent by December 31,
1998, and 100 percent by December 31, 1999. Alternatively, a carrier may
satisfy the regulations by operating a fleet that is at least 55 percent, 65
percent, 75 percent, and 100 percent Stage III by the dates set forth in the
preceding sentence, respectively. At December 31, 1994, approximately 86
percent of American's active fleet was Stage III, the quietest and most fuel
efficient rating category.
The ANCA recognizes the rights of airport operators with noise problems to
implement local noise abatement programs so long as they do not interfere
unreasonably with interstate or foreign commerce or the national air
transportation system. Authorities in several cities have promulgated aircraft
noise reduction programs, including the imposition of night-time curfews. The
ANCA generally requires FAA approval of local noise restrictions on Stage III
aircraft first effective after October 1990, and establishes a regulatory
notice and review process for local restrictions on Stage II aircraft first
proposed after October 1990. While American has had sufficient scheduling
flexibility to accommodate local noise restrictions imposed to date, American's
operations could be adversely affected if locally-imposed regulations become
more restrictive or widespread.
American has been identified by the EPA as a potentially responsible party
(PRP) with respect to the following Superfund Sites: Operating Industries,
Inc., California; Cannons, New Hampshire; Byron Barrel and Drum, New York;
Palmer PSC, Massachusetts; Frontier Chemical, New York and Duffy Brothers,
Massachusetts. American has settled the Palmer PSC and Byron Barrel and Drum
matters, and all that remains to complete these matters are administrative
tasks. American has signed a partial consent decree with respect to Operating
Industries, Inc. With respect to the Operating Industries, Inc., Palmer PSC,
Frontier Chemical and Duffy Brothers sites, American is one of several PRPs
named at each site. American's alleged waste disposal although they are
Superfund sites is minor compared to the other PRPs.
American, along with most other tenants at Boston Logan International
Airport, has been notified under the Massachusetts State Superfund statute of a
claim for contribution by the Massachusetts Port Authority (Massport).
Massport has claimed that American is responsible for past and future
remediation costs at the airport. American is vigorously defending against
Massport's claim.
American, along with most other tenants at the San Francisco International
Airport, has been ordered by the California Regional Water Quality Control
Board to engage in various studies of potential environmental contamination at
the airport and to undertake remedial measures, if necessary.
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American does not expect these matters, individually or collectively,
to have a material impact on its financial condition, operating results or cash
flows.
LABOR
The airline business is labor intensive. Wages, salaries and benefits
represented 36 percent of American's consolidated operating expenses for the
year ended December 31, 1994. To improve its competitive position, American
has undertaken various steps to reduce its unit labor costs, including
workforce reductions.
The majority of American's employees are represented by labor unions
and covered by collective bargaining agreements. American's relations with
such labor organizations are governed by the Railway Labor Act. Under this
act, the collective bargaining agreements among American and these
organizations do not expire but instead become amendable as of a stated date.
If either party wishes to modify the terms of any such agreement, it must
notify the other party before the contract becomes amendable. After receipt of
such notice, the parties must meet for direct negotiations, and if no agreement
is reached, either party may request the National Mediation Board (NMB) to
appoint a federal mediator. If no agreement is reached in mediation, the NMB
may determine, at any time, that an impasse exists, and if an impasse is
declared, the NMB proffers binding arbitration to the parties. Either party
may decline to submit to arbitration. If arbitration is rejected, a 30-day
"cooling-off" period commences, following which the labor organization may
strike and the airline may resort to "self-help," including the imposition of
its proposed amendments and the hiring of replacement workers.
American's collective bargaining agreement with the Association of
Professional Flight Attendants became amendable on December 31, 1992. The NMB
declared an impasse in the negotiations in September 1993, following a long
period of negotiation and mediation, and the parties entered into a 30-day
cooling off period, which ended without an agreement. At the end of the
cooling off period, American imposed certain contract amendments as permitted
by law. After the union staged a five-day strike against American in November
1993, the parties agreed to resolve the remaining issues through binding
arbitration. The arbitration process is complex and will likely not be decided
for several months. While the ultimate outcome is uncertain, the new contract
will likely result in higher unit labor costs in 1995 than in 1994.
American's collective bargaining agreement with the Allied Pilots
Association became amendable on August 31, 1994. American's collective
bargaining agreement with the Transport Workers Union became amendable March 1,
1995.
FUEL
American's operations are significantly affected by the availability and price
of jet fuel. American's fuel costs and consumption for the years 1990 through
1994 were:
Percent of
Gallons Average Price American's
Consumed Total Cost Per Gallon Operating
Year (in millions) (in millions) (in cents) Expenses
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1990 2,397 $ 1,899 79.2 17.4
1991 2,527 1,780 70.5 14.7
1992 2,862 1,862 65.1 13.6
1993 2,939 1,818 61.8 12.8
1994 2,741 1,556 56.7 11.2
Based upon American's 1994 fuel consumption, a one-cent increase in the
average annual price-per-gallon of jet fuel would increase American's monthly
fuel costs by approximately $2.3 million, not considering the offsetting effect
of American's fuel cost hedging program. American's fuel cost in 1994 decreased
14.4 percent from the prior year, primarily due to a 8.3 percent decrease in the
average price per gallon and a 6.7 percent decrease in gallons consumed.
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The impact of fuel price changes on the Company's competitors is dependent
upon various factors, including their hedging strategies. However, lower fuel
prices may be offset by increased price competition and lower revenues for all
air carriers. Conversely, there can be no assurance that American will be able
to pass fuel cost increases on to its customers by increasing fares in the
future.
Most of American's fuel is purchased pursuant to contracts which, by their
terms, may be terminated upon short notice. While American does not anticipate
a significant reduction in fuel availability, dependency on foreign imports of
crude oil and the possibility of changes in government policy on jet fuel
production, transportation and marketing make it impossible to predict the
future availability of jet fuel. If there were major reductions in the
availability of jet fuel, American's business would be adversely affected.
FREQUENT FLYER PROGRAM
American established the AAdvantage frequent flyer program (AAdvantage) to
develop passenger loyalty by offering awards to travelers for their continued
patronage. AAdvantage members earn mileage credits for flights on American,
American Eagle and certain other participating airlines, or by utilizing
services of other program participants, including hotels, car rental companies
and bank credit card issuers. American sells mileage credits to the other
companies participating in the program. American reserves the right to change
the AAdvantage program rules, regulations, travel awards and special offers at
any time. American may initiate changes impacting, for example, participant
affiliations, rules for earning mileage credit, mileage levels and awards,
blackout dates and limited seating for travel awards, and the features of
special offers. American reserves the right to end the AAdvantage program with
six months notice.
Mileage credits can be redeemed for free, discounted or upgraded travel on
American, American Eagle or participating airlines, or for other travel
industry awards. Once a member accrues sufficient mileage for an award, the
member may request an award certificate from American. Award certificates may
be redeemed up to one year after issuance. Most travel awards are subject to
blackout dates and capacity controlled seating. All miles earned after July
1989 must be redeemed within three years or they expire.
American accounts for its frequent flyer obligation on an accrual basis
using the incremental cost method. American's frequent flyer liability is
accrued each time a member accumulates sufficient mileage in his or her account
to claim the lowest level of free travel award (20,000 miles prior to February
1, 1995; 25,000 miles thereafter) and such award is expected to be used for
free travel on American. American includes fuel, food, and
reservations/ticketing costs, but not a contribution to overhead or profit, in
the calculation of incremental cost. The cost for fuel is estimated based on
total fuel consumption tracked by various categories of markets, with an amount
allocated to each passenger. Food costs are tracked by market category, with
an amount allocated to each passenger. Reservation/ticketing costs are based
on the total number of passengers, including those traveling on free awards,
divided into American's total expense for these costs. No accrual is made for
non-travel awards since the cost to American, if any, is de minimis.
At December 31, 1994 and 1993, American estimated that approximately 4.5
million and 5.4 million free travel awards, respectively, were eligible for
redemption. At December 31, 1994 and 1993, American estimated that
approximately 3.6 million and 4.4 million free travel awards, respectively,
were expected to be redeemed for free travel on American. In making this
estimate, American has excluded mileage in inactive accounts, mileage related
to accounts that have not yet reached the lowest level of free travel award,
mileage that is not expected to ever be redeemed for free travel, and mileage
related to accounts that have reached the lowest level of free travel award but
are estimated based on historical data to be redeemed for discounts and
upgrades, free travel on participating airlines other than American, or
services other than free travel, for which American has no obligation to pay
the provider of those services. The liability for the program mileage that has
reached the lowest level of free travel award and is expected to be redeemed
for free travel on American and deferred revenues for mileage sold to others
participating in the program was $329 million and $380 million, representing
7.1 percent and 9.0 percent of American's total current liabilities, at
December 31, 1994 and 1993, respectively.
The number of free travel awards used for travel on American during the
years ended December 31, 1994, 1993 and 1992, was approximately 2,198,000,
2,163,000, and 1,474,000, respectively, representing 8.5 percent, 9.5 percent
and 6.0 percent of total revenue passenger miles for each period, respectively.
American
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believes displacement of revenue passengers is insignificant given American's
load factors, its ability to manage frequent flyer seat inventory, and the
relatively low ratio of free award usage to revenue passenger miles.
OTHER MATTERS
SEASONALITY AND OTHER FACTORS American's results of operations for any interim
period are not necessarily indicative of those for the entire year, since the
air transportation business is subject to seasonal fluctuations. Higher demand
for air travel has traditionally resulted in more favorable operating results
for the second and third quarters of the year than for the first and fourth
quarters.
The results of operations in the air transportation business have also
significantly fluctuated in the past in response to general economic
conditions. In addition, fare initiatives, fluctuations in fuel prices, labor
strikes and other factors could impact this seasonal pattern. Unaudited
quarterly financial data for the two-year period ended December 31, 1994, is
included in Note 13 to the consolidated financial statements.
No material part of the business of American and its subsidiaries is
dependent upon a single customer, or very few customers. Consequently, the loss
of the Company's largest few customers would not have a materially adverse
effect upon American.
INSURANCE American carries insurance for public liability, passenger
liability, property damage and all-risk coverage for damage to its aircraft, in
amounts which, in the opinion of management, are adequate.
OTHER GOVERNMENT MATTERS In time of war or during an unlimited national
emergency or civil defense emergency, American and other major air carriers may
be required to provide airlift services to the Military Airlift Command under
the Civil Reserve Air Fleet program.
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
Owned and leased aircraft operated by American at December 31, 1994, included:
Weighted
Current Average
Seating Capital Operating Age
Equipment Type Capacity Owned Leased Leased Total (Years)
-------------- -------- ----- ------- --------- ----- --------
JET AIRCRAFT
Airbus A300-600R 267 10 - 25 35 5
Boeing 727-200 150 49 22 17 88 18
Boeing 757-200 188 40 9 32 81 3
Boeing 767-200 172 8 - - 8 12
Boeing 767-200 Extended Range 172 9 13 - 22 8
Boeing 767-300 Extended Range 215 12 3 22 37 4
Fokker 100 97 66 5 4 75 2
McDonnell Douglas DC-10-10 237/290 14 4 - 18 18
McDonnell Douglas DC-10-30 273 5 1 - 6 20
McDonnell Douglas MD-11 251/271 17 - - 17 2
McDonnell Douglas MD-80 139 119 25 116 260 7
--- -- --- --- --
Total 349 82 216 647 8
=== == === === ==
For information concerning the estimated useful lives and residual
values for owned aircraft, lease terms and amortization relating to aircraft
under capital leases, and acquisitions of aircraft, see Notes 1, 3 and 4 to
the
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consolidated financial statements. See Management's Discussion and Analysis
for discussion of the retirement of certain widebody aircraft from the fleet.
Lease expirations for American's leased aircraft included in the above
table as of December 31, 1994, were:
2000
and
Equipment Type 1995 1996 1997 1998 1999 Thereafter
- -------------- ---- ---- ---- ---- ---- ----------
JET AIRCRAFT
Airbus A300-600R - - - - - 25
Boeing 727-200 25 - - - 2 12
Boeing 757-200 - - - - - 41
Boeing 767-200 Extended Range - - - - - 13
Boeing 767-300 Extended Range - - - - - 10
Fokker 100 - - - - - 9
McDonnell Douglas DC-10-10 - 3 1 - - -
McDonnell Douglas DC-10-30 - - - 1 - -
McDonnell Douglas MD-80 - - - - - 141
-- -- -- -- -- ---
25 3 1 1 2 251
== == == == == ===
The table excludes leases for 15 Boeing 767-300 Extended Range aircraft
which can be canceled with 30 days' notice during the first 10 years of the
lease term. At the end of that term in 1998, the leases can be renewed for
periods ranging from 10 to 12 years.
Substantially all of American's aircraft leases include an option to
purchase the aircraft or to extend the lease term, or both, with the purchase
price or renewal rental to be based essentially on the market value of the
aircraft at the end of the term of the lease or at a predetermined fixed rate.
GROUND PROPERTIES
American leases, or has built as leasehold improvements on leased property,
most of its airport and terminal facilities; certain corporate office,
maintenance and training facilities in Fort Worth, Texas; its principal
overhaul and maintenance base and computer facility at Tulsa International
Airport, Tulsa, Oklahoma; its regional reservation offices; and local ticket
and administration offices throughout the system. American has entered into
agreements with the Tulsa Municipal Airport Trust; the Alliance Airport
Authority, Fort Worth, Texas; and the Dallas/Fort Worth, Chicago O'Hare,
Raleigh/Durham, Nashville, San Juan, New York, and Los Angeles airport
authorities to provide funds for constructing, improving and modifying
facilities and acquiring equipment which are or will be leased to American.
American also utilizes public airports for its flight operations under lease
arrangements with the municipalities or governmental agencies owning or
controlling them and leases certain other ground equipment for use at its
facilities.
For information concerning the estimated lives and residual values for
owned ground properties, lease terms and amortization relating to ground
properties under capital leases, and acquisitions of ground properties, see
Notes 1, 3 and 4 to the consolidated financial statements.
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ITEM 3. LEGAL PROCEEDINGS
American has been sued in two class action cases that have been
consolidated in the Circuit Court of Cook County, Illinois, in connection with
certain changes made to American's AAdvantage frequent flyer program in May,
1988. (Wolens, et al v. American Airlines, Inc., No. 88 CH 7554, and Tucker v.
American Airlines, Inc., No. 89 CH 199.) In both cases, the plaintiffs seek to
represent all persons who joined the AAdvantage program before May 1988. The
complaints allege that, on that date, American implemented changes that limited
the number of seats available to participants traveling on certain awards and
established holiday blackout dates during which no AAdvantage seats would be
available for certain awards. The plaintiffs allege that these changes breached
American's contracts with AAdvantage members and were in violation of the
Illinois Consumer Fraud and Deceptive Business Practice Act (Consumer Fraud
Act). Plaintiffs seek money damages of an unspecified sum, punitive damages,
costs, attorneys fees and an injunction preventing the Company from making any
future changes that would reduce the value of AAdvantage benefits. American
moved to dismiss both complaints, asserting that the claims are preempted by the
Federal Aviation Act and barred by the Commerce Clause of the U.S. Constitution.
The trial court denied American's preemption motions, but certified
its decision for interlocutory appeal. In December 1990, the Illinois Appellate
Court held that plaintiffs' claims for an injunction are preempted by the
Federal Aviation Act, but that plaintiffs' claims for money damages could
proceed. On March 12, 1992, the Illinois Supreme Court affirmed the decision of
the Appellate Court. American sought a writ of certiorari from the U.S. Supreme
Court; and on October 5, 1992, that Court vacated the decision of the Illinois
Supreme Court and remanded the cases for reconsideration in light of the U.S.
Supreme Court's decision in Morales v. TWA, et al, which interpreted the
preemption provisions of the Federal Aviation Act very broadly. On December 16,
1993, the Illinois Supreme Court rendered its decision on remand, holding that
plaintiffs' claims seeking an injunction were preempted, but that identical
claims for compensatory and punitive damages were not preempted. On February 8,
1994, American filed petition for a writ of certiorari in the U.S. Supreme
Court. The Illinois Supreme Court granted American's motion to stay the state
court proceeding pending disposition of American's petition in the U.S. Supreme
Court. The matter was argued before the U.S. Supreme Court on November 1,
1994, and on January 18, 1995, the U.S. Supreme Court issued its opinion ending
a portion of the suit against American. The U.S. Supreme Court held that a)
plaintiffs' claim for violation of the Illinois Consumer Fraud Act was preempted
by federal law -- entirely ending that part of the case and eliminating
plaintiffs' claim for punitive damages; and b) certain breach of contract claims
would not be preempted by federal law. The Court did not determine, however,
whether the contract claims asserted by the plaintiffs in Wolens were preempted,
and therefore remanded the case to the state court for further proceedings. In
the event that the plaintiffs' breach of contract claim is eventually permitted
to proceed in the state court, American intends to vigorously defend the case.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted under the reduced disclosure format pursuant to General Instruction
J(2)(c) of Form 10-K.
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
American is a wholly-owned subsidiary of AMR Corporation and there is no market
for the Registrant's Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Omitted under the reduced disclosure format pursuant to General Instruction
J(2)(a) of Form 10-K.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Abbreviated pursuant to General Instruction J(2)(a) of Form 10-K).
HIGHLIGHTS
SUMMARY American's net income in 1994 was $268 million. During the fourth
quarter of 1994, American recorded a charge of $276 million ($173 million after
tax) related to the cost of future pension and other postretirement benefits for
agent and management/support staff voluntary early retirement programs,
severance and other restructuring activities. Before the special charge, net
earnings were $441 million. In 1993 American recorded net income of $23
million. The 1993 results reflect the negative impact of a five-day strike in
November by the union representing American's flight attendants. The results
for 1993 also include a $125 million charge ($79 million after tax) for the
retirement of certain DC-10 aircraft and a positive $115 million adjustment to
revenues ($67 million net of related commission expense and taxes) for a change
in estimate related to certain earned passenger revenues. The Company's 1994
operating income was $912 million, compared to operating income of $564 million
in 1993.
In light of the changing competitive environment toward lower costs and
lower fares, in 1993 AMR began implementing a new strategic framework, known as
the Transition Plan. The Plan has three parts, each intended to improve AMR's
results. First, make the core airline business bigger and stronger where
economically justified. Second, and conversely, shrink the airline where it
cannot compete profitably. Third, reallocate resources and effort to AMR's and
American's growing information and management services businesses which are more
profitable than the airline.
American's improved results reflect progress on each of these three
tenets, as well as strong economies in most of the markets it serves, stringent
cost controls and relatively low fuel prices.
In the low fare environment that has existed in recent years, the
Company's efforts to increase unit revenues have focused on garnering a larger
share of premium fare traffic. American has added flights at its major hubs;
increased service between major business markets such as Dallas/Fort Worth,
Chicago and New York; added more first class seating on narrowbody aircraft;
expanded its successful transcontinental three-class service; and continued to
increase international service.
During the same period, American has continued to downsize, primarily
in domestic markets. Ninety-one older, less efficient jet aircraft have been
removed from service since the Transition Plan was introduced in 1993. American
has trimmed service to about 30 cities and on over 100 routes. American and
American Eagle closed their San Jose hub operations in 1993. American Eagle
service at Raleigh/Durham was eliminated at the end of 1994, and American
announced an end to its hub operation there by the summer of 1995. From the end
of 1993 to the end of 1994, the airline's average equivalent workforce declined
by 4,300. In 1995, American plans further workforce reductions as it
restructures airport and reservations agent activities and continues to reduce
management and administrative staffing.
Meanwhile, the Company's non-airline businesses continued their strong
performances. Domestic fare activity and international expansion generated
increased booking fees for The Information Services Group. In total, The
Information Services Group's revenues were up 8.7 percent from 1993 and its
operating margin was nearly 27 percent.
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REVENUES
1994 COMPARED TO 1993 American's operating revenues increased 0.7 percent to
$14.8 billion in 1994, compared to $14.7 billion in 1993. Passenger revenues
decreased 0.6 percent, $74 million. The decline in passenger revenues resulted
primarily from a 2.3 percent decrease in passenger yield (the average amount
one passenger pays to fly one mile) from 13.28 to 12.97 cents, partially offset
by a 1.8 percent increase in passenger traffic. Yields were driven lower by
competitive fare discounting and the greater presence of low-fare competitors
in certain domestic markets. In addition, from 1993 to 1994, average stage
length increased approximately 6.4 percent, contributing to the decline in
passenger yields since fares on longer trips tend to be lower than shorter
trips on a per mile basis. For the year, domestic yield decreased 4.0 percent,
while yield increased 2.6 percent in Latin America and 4.5 percent in Europe.
In 1994, American derived 71.5 percent of its passenger revenues from domestic
operations and 28.5 percent from international operations.
American's domestic traffic increased 0.4 percent, to 70.0 billion revenue
passenger miles (RPMs), while domestic capacity decreased 6.0 percent.
International traffic grew 5.2 percent, to 28.9 billion RPMs on a capacity
reduction of 2.7 percent. The increase in international traffic was led by a
9.7 percent increase in Latin America on capacity growth of 1.1 percent, and a
1.6 percent increase in Europe on a capacity reduction of 6.9 percent. Traffic
suffered in 1993 from American's inability to carry passengers during the
flight attendants' strike in November 1993 and the adverse effect of the strike
on passenger demand in the following month.
Cargo revenues increased 1.7 percent, $11 million, driven by an 8.6
percent increase in American's domestic and international cargo volumes,
partially offset by decreasing yields brought about by strong price competition
resulting from excess industry capacity.
Other revenues, consisting of fees for excess baggage and other passenger
services, tour marketing, contract maintenance and miscellaneous other
revenues, increased 20.3 percent, $107 million, primarily as a result of
increased passenger traffic, additional contract maintenance work and leasing
of excess aircraft.
Information Services Group revenues increased 8.7 percent, $101 million,
primarily due to growth in booking volumes, increased average fees per booking
collected from participating vendors and the introduction of premium priced
products.
EXPENSES
1994 COMPARED TO 1993 Operating expenses in 1994 included restructuring
charges of $276 million, primarily resulting from the cost of future pension
and other postretirement benefits related to agent and management voluntary
early retirement programs. Excluding the restructuring costs, the Company's
operating expenses decreased 3.7 percent, $524 million. American's capacity
decreased 5.1 percent, to 152.7 billion ASMs, due primarily to the retirement
of 41 aircraft partially offset by the addition of 22 new aircraft. Because
capacity decreased more rapidly than expenses, American's Passenger Division
cost per ASM, excluding restructuring costs, increased by 1.1 percent, to 8.34
cents.
Despite a 4.9 percent decrease in the average number of equivalent
employees, wages, salaries and benefits expense rose 2.3 percent, $111 million.
The increase was due primarily to contractual and other wage and salary
adjustments for existing employees, variable compensation under the Company's
various profit sharing plans, and rising pension and other postretirement
benefit costs.
Aircraft fuel expense decreased 14.4 percent, $262 million, due to an 8.3
percent decrease in the average price per gallon and a 6.7 percent decrease in
gallons consumed. The average price per gallon decreased from $0.62 per gallon
in 1993 to $0.57 per gallon in 1994. American consumed an average of 228
million gallons of jet fuel each month. A one-cent increase in fuel prices
costs approximately $2.3 million per month, not considering the offsetting
effect of the Company's fuel price hedging program.
Commissions to agents decreased 8.6 percent, $120 million, due to a lower
percentage of passenger revenues subject to commissions and a change in
classification of certain international commissions.
New aircraft acquisitions and other capital spending increased
depreciation and amortization 2.1 percent, $23 million. Capital spending in
1994 included acquisition of 17 owned jet aircraft, five capital-leased jet
aircraft
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and other capital equipment. This increase was partially offset by the
retirement of 22 owned and capital-leased aircraft from the fleet.
Food service cost decreased 4.3 percent, $30 million, due to a 1.8
percent decline in passengers boarded and aggressive cost reduction strategies
including changes in meal scheduling policies, renegotiation of contracts and
increased use of vendor-prepared products.
Aircraft rentals decreased 3.0 percent, $19 million, primarily due to
the expiration of operating leases during 1994 on 19 Boeing 727 aircraft.
Maintenance materials and repairs expense decreased 19.2 percent, $104
million, as a result of retiring older aircraft from the fleet, increased
warranty recoveries, and operational efficiencies gained by reducing the
number of maintenance locations and other initiatives.
Other operating expenses (including crew travel expenses, booking fees,
purchased services, communications charges, credit card fees and advertising)
decreased 5.1 percent, $116 million, primarily due to the decrease in
capacity.
Interest expense increased 12.0 percent, $49 million, due primarily to
an increase in the rate on American's intercompany subordinated note with AMR,
the rising interest costs of floating rate obligations, partially offset by a
reduction in the average note balance outstanding and savings generated by
interest rate swap transactions.
Interest capitalized decreased 57.1 percent, $28 million, as a result
of the decrease in the average balance during the year of purchase deposits
for flight equipment.
Miscellaneous - net for 1993 includes a $125 million charge related to
the retirement of certain DC-10 aircraft.
OTHER INFORMATION
DEFERRED TAX ASSETS As of December 31, 1994, the Company had deferred tax
assets aggregating approximately $2.2 billion, including approximately $456
million of alternative minimum tax credit carryforwards. The Company believes
substantially all the deferred tax assets will be realized through reversal of
existing taxable temporary differences.
ENVIRONMENTAL MATTERS American has been notified of potential liability with
regard to several environmental cleanup sites. At sites where remedial
litigation has commenced, potential liability is joint and several. American's
alleged volumetric contributions at the sites are minimal. American does not
expect these actions, individually or collectively, to have a material impact on
its financial condition, operating results or cash flows.
DISCOUNT RATE Due to the increase in interest rates during 1994, the discount
rate used to determine the Company's pension obligations as of December 31,
1994, and the related expense for 1995 has been increased. The Company expects
the decrease in 1995 pension expense as a result of the change in the discount
rate will be more than offset by the impact of depreciation in the market value
of pension plan assets experienced during 1994.
LITIGATION SETTLEMENT During 1994, the U.S. District Court for the Northern
District of Georgia approved the settlement of various class action claims
against American and certain other carriers. Under the terms of the settlement
agreement, the carriers paid a total of approximately $50 million in cash and
jointly issued approximately $408 million in face amount of certificates for
discounts of approximately 10 percent on future air travel on any of the
carriers. A liability has not been established for the certificate portion of
the settlement since American expects that, in the aggregate, future revenues
received upon redemption of the certificates will exceed the related cost of
providing the air travel. American anticipates that the share of the
certificates redeemed on American may represent, but is not limited to,
American's 26 percent market share among the carriers. The ultimate impact of
the settlement on American's revenues, operating margins or earnings is not
13
15
reasonably estimable since both the portion of certificates to be redeemed on
American and the stimulative or depressive effect of the certificate redemption
on revenues is not known.
OUTLOOK FOR 1995
During 1994, AMR continued the course of change initiated in 1993. Following a
comprehensive review of the competitive realities of its businesses, in 1993
AMR determined it would have to change significantly to generate sufficient
earnings. AMR recognized that the fundamental problems of the airline --
increasing competition from low-cost, low-fare carriers, its inability to
reduce labor costs to competitive levels, and the changing values of its
customers -- demanded new solutions. As an initial response to that need, in
1993 AMR created and began implementing a new strategic framework known as the
Transition Plan. The plan has three parts, each intended to improve AMR's
results. First, make the core airline business bigger and stronger where
economically justified. Second, and conversely, shrink the airline where it
cannot compete profitably. Third, encourage the growth of the information and
management services businesses, which are more profitable than the airline.
An integral part of the Transition Plan is the expansion of the business
activities of The SABRE Group. The SABRE Group was formed as a business unit
during 1993, integrating reporting relationships among American's STIN, SCS and
SDS divisions and AMR's other information technology businesses, AMR plans to
more fully develop and market its distinct information technology expertise
through The SABRE Group and continues to investigate opportunities for further
expanding its information technology businesses. These opportunities may
include the combination of marketing and/or developmental functions of The
SABRE Group businesses and/or a formal reorganization of The SABRE Group into
one or more subsidiaries of AMR. This formal reorganization, if concluded,
would likely involve the transfer to AMR, by means of a dividend, of American's
STIN, SCS and SDS divisions. In addition, a formal reorganization would also
result in the Company's compliance with a directive from the European Community
Council of Ministers that, in effect, requires that a CRS operating in the
European Community have a legal status that is separate and apart from its
affiliated airline.
Further, the Transition Plan recognizes the unfavorable and uncertain
economics which have characterized the core airline business in recent years,
acknowledges the airline cost problem and seeks to maximize the contribution of
AMR's more profitable businesses. Over the long term, AMR will continue its
best efforts to reduce airline costs and to restore the airline operations to
profitability. Based upon the success or failure of those efforts, AMR will
make ongoing determinations as to the appropriate level of investment in its
airline operations, which may result, if the airline cannot be run profitably,
in the disposition or termination, over the long term, of a substantial part or
all of the airline operations.
AIR TRANSPORTATION GROUP Despite the challenges faced by American, the
airline has many basic strengths. These include a hub-and-spoke route network
that allows it to efficiently serve thousands of domestic and international
markets; a modern, quiet, fuel-efficient fleet; the AAdvantage frequent flyer
program; and leading-edge computer technology, including the industry's premier
yield management system.
These strengths and American's continued focus on premium-fare traffic
have helped to lessen the impact of an adverse pricing environment. While
competitive pressures have continued to weaken passenger yields, robust
economic conditions and careful revenue management have led to increases in
American's passenger revenue per ASM. During 1995, American will add to the
number of flights at its most successful hub operations at Dallas/Fort Worth
and Miami, as well as in certain transcontinental and international markets.
As restructuring programs announced in late 1994 are phased in, American
will make substantial progress in reducing certain labor costs. Changes in the
way American operates its airports and reservations offices, including
outsourcing small station operations and some reservations activities and in
the way it pays hourly non-management employees such as ticket agents and
reservations agents, are expected to save about $35 million in 1995 and about
$130 million annually when steady state is achieved in four to five years.
In addition, in March 1995 AMR announced the results of a six-month study
of its Air Transportation Group's administrative functions. AMR expects to
implement changes based on the results of the study which will result in cost
savings of approximately $38 million in 1995. Once the changes
14
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are fully implemented in 1996, they are expected to reduce annual
administrative costs by approximately $93 million. Also as a result of the
study, AMR announced certain organizational changes which are expected to yield
additional cost savings.
Despite ongoing efforts, the airline has yet to make significant
progress on reducing its contractual labor costs. American is currently in
various stages of discussion with all three of its major unions. The ultimate
outcome of these discussions cannot be estimated at this time.
First, the Company's contract with the Association of Professional
Flight Attendants (APFA) became amendable in December 1992. Following a lengthy
negotiation and mediation process, the APFA staged a five-day strike against the
Company in November 1993. The strike ended when both parties agreed to binding
arbitration. The arbitration process began last October, and the arbitrators'
decision is expected sometime during late summer. While the outcome cannot be
predicted, the new contract will likely result in higher unit labor costs in
1995 than in 1994.
Second, American has been in negotiations since last July with the
Allied Pilots Association (APA) which represents its 9,100 pilots. The contract
with the APA became amendable August 31, 1994. In exchange for substantial
productivity improvements, American has offered both job and income protection.
To date, little progress has been made, and it is not clear when -- or if --
American will be successful in achieving the needed changes.
Finally, American's contract with the Transport Workers Union (TWU),
which represents its ramp service workers and mechanics, became amendable March
1, 1995. The Company and the TWU opened formal negotiations in February.
American is discussing both enhanced job security and early-retirement programs
in exchange for a fundamentally revised agreement that will give it the right to
outsource certain functions, use more part-time employees and implement other
efficiency improvements.
Faced with the prospect of continuing to bear uncompetitive labor
costs, American has continued to downsize, primarily in domestic markets. Since
the initial phases of the Transition Plan were implemented in 1993, American has
cut jet service to about 30 cities and on over 100 routes. Approximately 90
older, less efficient jet aircraft have been removed from the fleet, and, as a
result, approximately 5,000 positions at the airline have been eliminated. In
1995, American plans to remove another 23 Boeing 727 and three McDonnell Douglas
DC 10 aircraft from the fleet. American will add six Boeing 757 and four Boeing
767 aircraft to the fleet, as the last delivery from the large jet orders of the
1980s approaches. These changes will reduce the number of jet aircraft in the
fleet to 633 at the end of 1995, down from 647 at December 31, 1994 and 667 at
December 31, 1993.
As the fleet continues to shrink, American will continue to reallocate
assets to its most profitable markets and to refine its operations. Despite
continued fleet reductions, American's system wide capacity is planned to
increase slightly, primarily due to increased aircraft utilization. This
capacity increase follows a 5.1 percent decline in 1994. Domestic ASMs are
expected to fall 1.1 percent, while international ASMs will increase 5.4
percent.
In January 1995, American announced a substantial reduction at
Raleigh/Durham that will end its hub operations there by summer. At the same
time, the Company announced an agreement to sublease 12 gates to Midway
Airlines, which joined the AAdvantage frequent flyer program as a full
participant. As a result, American will eliminate a substantial amount of
overhead while maintaining a marketing presence in the North/South traffic
flow. Midway's service at Raleigh/Durham will complement American's service in
markets between the Northeast and Florida. American also announced a
significant reduction in flights at the Nashville hub for 1995.
In February 1995, American changed its travel agent commission
structure for domestic tickets by introducing a maximum commission payment of
$50 per round-trip ticket and $25 per one-way ticket. The change is effective
for tickets issued on or after February 27. The commission cap applies to all
tickets issued by U.S. travel agents for travel within the continental United
States, Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands. The change in
commission structure is expected to result in lower commissions expense in 1995.
15
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American's revenue plan for 1995 reflects continued emphasis on producing
premium yields by attracting more full fare passengers than its competitors.
As a part of that plan, American will expand service at its most successful
hubs, increase frequencies in key long-haul business markets and add service in
certain international markets.
In 1995, though the Air Transportation Group will continue its rigorous
program of cost control, it expects unit costs, excluding fuel and the impact
of the change in the commission structure, to rise modestly over 1994's unit
costs, excluding the restructuring costs. The increase will be driven
primarily by increased rental and maintenance costs. The increase in unit
labor costs due to contractual wage and benefit increases will be partially
offset by the savings generated by the implementation of other labor
cost reduction initiatives.
American will continue to pursue other sources of revenue, including
building AAdvantage program participation and joint marketing programs, leasing
excess aircraft, and pursuing contracts to provide maintenance, training, and
other services. The Company will also seek to increase airline cargo revenues
in 1995.
In August 1993, the Omnibus Budget Reconciliation Act was signed into law,
imposing a new 4.3 cents per gallon tax on commercial aviation jet fuel for use
in domestic operations. The new tax will become effective October 1, 1995, and
is scheduled to continue until October 1, 1998. American estimates the
resulting annual increase in fuel taxes will be approximately $90 million.
Since the Company cannot currently generate sufficient returns to justify
investment in new aircraft, capital expenditures will continue to fall. For
1995, the Company plans capital spending of approximately $1 billion, and by
1996 planned capital spending for the Information Services Group will be
approximately equal to planned spending for the airline, each at about $300
million. As a result of the decreased capital spending, the Company expects to
generate positive cash flow in 1995.
INFORMATION SERVICES GROUP During 1994, The SABRE Group implemented a new
business strategy that will narrow its focus and capitalize on its strengths in
travel and transportation information systems and decision support.
Following STIN's expansion in Europe, Latin American and Mexico and the
introduction of SABRE into India in 1994, it will focus on continued
international growth of the SABRE computer reservation system in 1995. In
addition, The SABRE Group will continue to develop and market an expanding
array of information systems products and services to a growing list of
customers throughout the world.
The SABRE Group was instrumental in successfully implementing the
Company's long-term services agreement with Canadian Airlines International.
That agreement is expected to generate average revenues for AMR of more than
$100 million a year in each of the next 20 years, beginning in 1995. The
majority of the revenues relate to services provided by the Information
Services Group.
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors 18
Consolidated Statement of Operations 19
Consolidated Balance Sheet 20
Consolidated Statement of Cash Flows 22
Consolidated Statement of Stockholder's Equity 23
Notes to Consolidated Financial Statements 24
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
American Airlines, Inc.
We have audited the accompanying consolidated balance sheets of American
Airlines, Inc. as of December 31, 1994 and 1993, and the related consolidated
statements of operations, stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1994. Our audits also included
the financial statement schedules listed in Item 14(a). These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
Airlines, Inc. at December 31, 1994 and 1993, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Notes 7 and 8 to the consolidated financial statements,
effective January 1, 1992, the Company changed its method of accounting for
income taxes and postretirement benefits other than pensions.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
February 13, 1995
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AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions)
- --------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------
1994 1993 1992
------- ------- -------
REVENUES
Air Transportation Group:
Passenger $12,826 $12,900 $11,895
Cargo 648 637 577
Other 634 527 501
------- ------- -------
14,108 14,064 12,973
Information Services Group 1,268 1,167 1,088
Less: Intergroup revenues (539) (494) (480)
------- ------- -------
Total operating revenues 14,837 14,737 13,581
------- ------- -------
EXPENSES
Wages, salaries and benefits 5,038 4,927 4,690
Aircraft fuel 1,556 1,818 1,862
Commissions to agents 1,273 1,393 1,263
Depreciation and amortization 1,138 1,115 958
Other rentals and landing fees 780 787 764
Food service 663 693 690
Aircraft rentals 620 639 631
Maintenance materials and repairs 438 542 595
Other operating expenses 2,143 2,259 2,205
Restructuring costs 276 - -
------- ------- -------
Total operating expenses 13,925 14,173 13,658
------- ------- -------
OPERATING INCOME (LOSS) 912 564 (77)
OTHER INCOME (EXPENSE)
Interest income 13 5 13
Interest expense (457) (408) (386)
Interest capitalized 21 49 98
Miscellaneous - net (47) (136) (44)
------- ------- -------
(470) (490) (319)
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 442 74 (396)
Income tax provision (benefit) 174 51 (122)
------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES 268 23 (274)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES:
Postretirement benefits other than
pensions, net of tax benefit - - (593)
Income taxes - - 132
------- ------- -------
NET EARNINGS (LOSS) $ 268 $ 23 $ (735)
======= ======= =======
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
19
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AMERICAN AIRLINES, INC.
CONSOLIDATED BALANCE SHEET
(in millions)
- --------------------------------------------------------------------------------
December 31,
-----------------------------
1994 1993
------- -------
ASSETS
CURRENT ASSETS
Cash $ 13 $ 55
Short-term investments of affiliates 744 514
Receivables, less allowance for uncollectible
accounts (1994 - $14; 1993 - $26) 877 731
Receivables from affiliates 493 223
Inventories, less allowance for obsolescence
(1994 - $171; 1993 - $162) 590 606
Deferred income taxes 270 269
Other current assets 115 130
------- -------
Total current assets 3,102 2,528
EQUIPMENT AND PROPERTY
Flight equipment, at cost 12,417 12,142
Less accumulated depreciation 3,285 2,950
------- -------
9,132 9,192
Purchase deposits for flight equipment 105 313
------- -------
9,237 9,505
Other equipment and property, at cost 3,765 3,713
Less accumulated depreciation 1,899 1,749
------- -------
1,866 1,964
------- -------
11,103 11,469
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment 2,098 1,822
Other equipment and property 267 245
------- -------
2,365 2,067
Less accumulated amortization 823 707
------- -------
1,542 1,360
OTHER ASSETS
Route acquisition costs, less accumulated amortization
(1994 - $124; 1993 - $95) 1,032 1,061
Airport operating and gate lease rights, less accumulated amortization
(1994 - $72; 1993 - $56) 337 356
Prepaid pension cost 99 398
Other 601 577
------- -------
2,069 2,392
------- -------
TOTAL ASSETS $17,816 $17,749
======= =======
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
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AMERICAN AIRLINES, INC.
CONSOLIDATED BALANCE SHEET
(in millions, except shares and par value)
- --------------------------------------------------------------------------------
December 31,
----------------------------
1994 1993
------- -------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 831 $ 857
Payables to affiliates 759 479
Accrued salaries and wages 581 467
Accrued liabilities 853 814
Air traffic liability 1,473 1,461
Current maturities of long-term debt 49 70
Current obligations under capital leases 110 92
------- -------
Total current liabilities 4,656 4,240
LONG-TERM DEBT, LESS CURRENT MATURITIES 1,518 1,453
LONG-TERM DEBT DUE TO PARENT 3,196 4,045
OBLIGATIONS UNDER CAPITAL LEASES,
LESS CURRENT OBLIGATIONS 1,964 1,792
OTHER LIABILITIES AND CREDITS
Deferred income taxes 268 338
Deferred gains 732 784
Postretirement benefits 1,247 1,085
Other liabilities and deferred credits 1,002 844
------- -------
3,249 3,051
COMMITMENTS, LEASES AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock - $1 par value;
1,000 shares authorized, issued and outstanding - -
Additional paid-in capital 1,699 1,699
Minimum pension liability adjustment (199) -
Retained earnings 1,733 1,469
------- -------
3,233 3,168
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $17,816 $17,749
======= =======
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
21
23
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
(in millions)
Year Ended December 31,
-------------------------------------------------
1994 1993 1992
------ ------- -------
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 268 $ 23 $ (735)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,138 1,115 958
Deferred income taxes 51 (4) (26)
Provision for restructuring costs 276 - -
Provisions for losses - 125 -
Cumulative effect of accounting changes - - 461
Change in assets and liabilities:
Decrease (increase) in receivables (416) 101 (126)
Increase in inventories (12) (6) (72)
Increase (decrease) in accounts payable
and accrued liabilities 10 (6) (21)
Increase (decrease) in payables to affiliates 42 (60) 1
Increase (decrease) in air traffic liability 13 (64) 366
Other, net 93 78 37
------ ------- -------
Net cash provided by operating activities 1,463 1,302 843
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (899) (1,873) (3,157)
Net decrease (increase) in short-term investments (238) 287 334
Funds transferred from (to) affiliates for investment, net 238 (287) (334)
Other, net 36 35 (2)
------ ------- -------
Net cash used for investing activities (863) (1,838) (3,159)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of long-term debt 130 330 684
Sale-leaseback transactions 280 - 610
Net short-term borrowings (repayments)
with maturities of 90 days or less - (350) 18
Other short-term borrowings 200 - 104
Payments on other short-term borrowings (200) (30) (153)
Payments on long-term debt and capital lease obligations (206) (294) (282)
Funds transferred from (to) affiliates, net (849) 809 1,286
Other, net 3 81 7
------ ------- -------
Net cash provided by (used for) financing activities (642) 546 2,274
------ ------- -------
Net increase (decrease) in cash (42) 10 (42)
Cash at beginning of year 55 45 87
------ ------- -------
Cash at end of year $ 13 $ 55 $ 45
====== ======= =======
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
22
24
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in millions)
- --------------------------------------------------------------------------------
Minimum
Additional Pension
Common Paid-in Liability Retained
Stock Capital Adjustment Earnings Total
------ ---------- ---------- -------- ------
Balance at January 1, 1992 $ - $1,699 $ - $2,173 $3,872
Net loss - - - (735) (735)
Other - - - 10 10
------ ------ ----- ------ ------
Balance at December 31, 1992 - 1,699 - 1,448 3,147
Net earnings - - - 23 23
Other - - - (2) (2)
------ ------ ----- ------ ------
Balance at December 31, 1993 - 1,699 - 1,469 3,168
Net earnings - - - 268 268
Adjustment for minimum
pension liability - - (199) - (199)
Other - - - (4) (4)
------ ------ ----- ------ ------
Balance at December 31, 1994 $ - $1,699 $(199) $1,733 $3,233
====== ====== ===== ====== ======
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
23
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF CONSOLIDATION American Airlines, Inc. (American or the Company) is a
wholly-owned subsidiary of AMR Corporation (AMR). The consolidated financial
statements include the accounts of American and its wholly-owned subsidiaries.
All significant intercompany transactions have been eliminated. Certain
amounts from prior years have been reclassified to conform with the 1994
presentation.
TRANSACTIONS WITH AFFILIATES Transactions with affiliates are on a basis
determined by the parties.
American invests funds of affiliates in a combined short-term investment
portfolio and passes through interest income on such funds at the average rate
earned on the portfolio. To the extent funds transferred to American exceed
the invested portfolio, such amounts are converted to Long-Term Debt due to
Parent under a subordinated note agreement with AMR. To the extent American
invests its excess cash flows in the short-term investment portfolio, Long-Term
Debt due to Parent is reduced with a corresponding increase in Payables to
Affiliates. The subordinated promissory note bears interest based on the
weighted-average rate on AMR's long-term debt and preferred stock (8.2 percent
at December 31, 1994). The interest rate is reset every six months. The note
is due September 30, 2004, unless extended. American may prepay the note
without penalty at any time. Under the provisions of such note agreements,
approximately $2.94 billion and $3.86 billion was included in Long-Term Debt
due to Parent as of December 31, 1994 and 1993, respectively.
Payables to Affiliates includes approximately $744 million and $514
million at December 31, 1994 and 1993, respectively, representing funds of
affiliates transferred to American for investment and invested in the
portfolio.
Interest paid to affiliates in addition to interest income passed through
on invested funds was approximately $187 million, $132 million and $106 million
for the years ended December 31, 1994, 1993 and 1992, respectively.
Interest expense includes $17 million for the year ended December 31, 1994
and $16 million for the years ended December 31, 1993 and 1992, relating to
debentures held by AMR calculated at a 9.03 percent effective interest rate.
American paid affiliates $140 million, $138 million and $110 million in
1994, 1993 and 1992, respectively, for ground handling services provided at
selected airports, data processing services, consulting services and investment
management and advisory services with respect to short-term investments and the
assets of its retirement benefit plans.
American issues tickets for flights on its American Eagle affiliate
regional carriers, owned by AMR Eagle, Inc a subsidiary of AMR. As a result,
the revenue collected for such tickets is prorated between American and the AMR
Eagle carriers based on the segments flown by the respective carriers. In
addition, in 1994, 1993 and 1992, American paid fees of $174 million, $261
million and $213 million, respectively, included in Other Operating Expenses,
to AMR Eagle primarily for passengers connecting with American flights.
American charges AMR affiliates for the use of its communications,
accounting and information processing systems, as well as for other services.
American recognizes compensation expense associated with certain AMR
common stock-based awards for employees of American.
24
26
INVENTORIES Spare parts, materials and supplies relating to flight equipment
are carried at average cost and are expensed when used in operations. Allowances
for obsolescence are provided, over the estimated useful life of the related
aircraft and engines, for spare parts expected to be on hand at the date
aircraft are retired from service.
EQUIPMENT AND PROPERTY The provision for depreciation of operating equipment
and property is computed on the straight- line method applied to each unit of
property, except that spare assemblies are depreciated on a group basis. The
depreciable lives and residual values used for the principal depreciable asset
classifications are:
Residual
Depreciable Life Value
---------------- --------
Boeing 727-200 21 years(1) 5%
DC-10-10 and DC-10-30 December 31, 1999(2) 5%
Other aircraft 20 years 5%
Major rotable parts, avionics and assemblies Life of equipment to which 10%
applicable
Improvements to leased flight equipment Term of lease None
Buildings and improvements (principally on 10-30 years or term of lease None
leased land)
Other equipment 3-20 years None
(1) In 1991, American changed the estimated useful lives of its Boeing
727-200 aircraft and engines from a common retirement date of
December 31, 1994, to projected retirement dates by aircraft, which
results in an average depreciable life of approximately 21 years.
(2) Approximate common retirement date.
Equipment and property under capital leases are amortized over the term
of the leases and such amortization is included in depreciation and
amortization. Lease terms vary but are generally 10 to 20 years for aircraft
and 7 to 40 years for other leased equipment and property.
MAINTENANCE AND REPAIR COSTS Maintenance and repair costs for owned and leased
flight equipment are charged to operating expense as incurred.
INTANGIBLE ASSETS The Company continually evaluates intangible assets to
determine whether current events and circumstances warrant adjustment of the
carrying values or amortization periods.
Route acquisition costs and airport operating and gate lease rights
represent the purchase price attributable to route authorities, airport take-off
and landing slots and airport gate leasehold rights acquired and are being
amortized on a straight-line basis over 10 to 40 years.
PASSENGER REVENUES Passenger ticket sales are initially recorded as a current
liability. Revenue derived from the sale is recognized at the time
transportation is provided.
FREQUENT FLYER PROGRAM The estimated incremental cost of providing free travel
awards is accrued when such award levels are reached. American sells mileage
credits to participating companies in its frequent flyer program. The portion
of such revenues that relates to transportation is deferred and recognized over
a period approximating the time transportation is provided.
INCOME TAXES AMR and its eligible subsidiaries, including American, file a
consolidated federal income tax return. Deferred income taxes reflect the net
tax effects of temporary differences between the financial reporting carrying
amounts of assets and liabilities and the income tax amounts.
DEFERRED GAINS Gains on the sale and leaseback of equipment and property are
deferred and amortized over the terms of the related leases as a reduction of
rent expense.
25
27
DERIVATIVE FINANCIAL INSTRUMENTS Market value gains or losses on foreign
currency exchange agreements are recognized and offset against foreign exchange
gains or losses on the related existing assets or liabilities. Gains and
losses on fuel swap agreements are recognized as a component of fuel expense
when the underlying fuel being hedged is used. Net settlements under interest
rate swap agreements are reflected in interest expense on the accrual basis.
STATEMENT OF CASH FLOWS Short-term investments, without regard to remaining
maturity at acquisition, are not considered as cash equivalents for purposes of
the statement of cash flows.
2. SHORT-TERM INVESTMENTS
Short-term investments consisted of (in millions):
December 31,
----------------------
1994 1993
------ ------
Overnight investments and time deposits $ 324 $ -
Corporate notes 246 222
Federal and municipal government securities 35 150
Other debt securities 139 142
------ ------
$ 744 $ 514
====== ======
The fair value of short-term investments at December 31, 1994, by
contractual maturity was (in millions):
Due in one year or less $ 488
Due after one year through three years 121
Due after three years 135
-----
$ 744
=====
All short-term investments were classified as available-for-sale and
stated at fair value.
3. COMMITMENTS AND CONTINGENCIES
The Company has on order 14 jet aircraft -- ten Boeing 757-200s and four
Boeing 767-300ERs -- scheduled for delivery through 1996. Deposits of $105
million have been made toward the purchase of these aircraft. Future payments,
including estimated amounts for price escalation through anticipated delivery
dates for these aircraft and related equipment will be approximately $450
million in 1995 and $150 million in 1996, a portion of which is payable in
foreign currencies.
In addition to these commitments for aircraft, the Company has authorized
expenditures of approximately $350 million for aircraft modifications,
renovations of, and additions to, airport and office facilities and various
other equipment and assets. American expects to spend approximately $225
million of this amount in 1995.
American has included an event risk covenant in approximately $2.9 billion
of lease agreements. The covenant permits the holders of such instruments to
receive a higher rate of return (between 50 and 700 basis points above the
stated rate) if a designated event, as defined, should occur and the credit
rating of the debt obligations underlying the lease agreements is downgraded
below certain levels.
26
28
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 and 1993, receivables are
presented net of approximately $112 million and $300 million, respectively, of
such transferred receivables. American maintains an allowance for uncollectible
receivables based upon expected collectibility of all receivables, including the
receivables transferred.
Special facility revenue bonds have been issued by certain
municipalities, primarily to purchase equipment and improve airport facilities
which are leased by American. In certain cases, the bond issue proceeds were
loaned to American and are included in long-term debt. Certain bonds have rates
that are periodically reset and are remarketed by various agents. In certain
circumstances, American may be required to purchase up to $413 million of the
special facility revenue bonds prior to maturity, in which case American has the
right to resell the bonds or to use the bonds to offset its lease or debt
obligations. American may borrow the purchase price of these bonds under
standby letter-of- credit agreements. At American's option, these letters of
credit are secured by funds held by bond trustees and by approximately $421
million of short-term investments.
4. LEASES
American leases various types of equipment and property, including
aircraft, passenger terminals, equipment and various other facilities. The
future minimum lease payments required under capital leases, together with the
present value of net minimum lease payments, and future minimum lease payments
required under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 1994, were (in millions):
Capital Operating
Year Ending December 31, Leases Leases
------- ---------
1995 $ 228 $ 887
1996 254 883
1997 236 884
1998 231 902
1999 226 889
2000 and subsequent 2,148 15,321
------- --------
3,323 (1) $ 19,766 (2)
========
Less amount representing interest 1,249
-------
Present value of net minimum lease payments $ 2,074
=======
(1) Future minimum payments required under capital leases include $390
million and $216 million guaranteed by AMR and American,
respectively, relating to special facility revenue bonds issued by
municipalities.
(2) Future minimum payments required under operating leases include $6.3
billion guaranteed by AMR relating to special facility revenue bonds
issued by municipalities.
At December 31, 1994, the Company had 216 jet aircraft under operating
leases and 82 jet aircraft under capital leases.
27
29
4. LEASES (CONTINUED)
The aircraft leases can generally be renewed at rates based on fair market
value at the end of the lease term for one to five years. Most aircraft leases
have purchase options at or near the end of the lease term at fair market
value, but generally not to exceed a stated percentage of the defined lessor's
cost of the aircraft. Of the aircraft American has under operating leases, 15
Boeing 767-300ERs are cancelable upon 30 days' notice during the initial
10-year lease term. At the end of that term in 1998, the leases can be renewed
for periods ranging from 10 to 12 years.
Rent expense, excluding landing fees, was $1.2 billion for each of the
years ended December 31, 1994 and 1993, and $1.1 billion for the year ended
December 31, 1992.
5. INDEBTEDNESS
Long-term debt (excluding amounts maturing within one year) consisted of
(in millions):
December 31,
----------------------
1994 1993
------ ------
6.08% - 9.60% notes due through 2021 $ 686 $ 697
Variable rate indebtedness due through 2024
(4.88% - 6.94% at December 31, 1994) 578 492
7.10% - 9.25% bonds due through 2031 181 181
Other 73 83
------ ------
Long-term debt, less current maturities $1,518 $1,453
====== ======
Maturities of long-term debt (including sinking fund requirements) for the
next five years are: 1995 - $49 million; 1996 - $56 million; 1997 - $53
million; 1998 - $59 million; 1999 - $55 million.
Certain debt is secured by aircraft, engines, equipment and other assets
having a net book value of approximately $1.5 billion.
American has a $410 million short-term credit facility agreement which
expires in 1995 and a $750 million credit facility expiring in 1997. American
also had a $335 million multiple option facility which American terminated in
January 1995. Interest on borrowings under these agreements is calculated at
floating rates based upon the London Interbank Offered Rate (LIBOR). As of
February 13, 1995, no borrowings were outstanding and approximately $1.16
billion was available under these facilities.
American's debt and credit facility agreements contain certain restrictive
covenants, including a cash flow coverage test, a minimum net worth requirement
and limitations on indebtedness and the declaration of dividends on shares of
its capital stock. At December 31, 1994, under the most restrictive provisions
of those agreements, approximately $629 million of American's retained earnings
were available for payment of cash dividends to AMR.
28
30
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As part of the Company's risk management program, American uses a
variety of financial instruments, including interest rate swaps, fuel swaps and
collars and currency exchange agreements. The Company does not hold or issue
derivative financial instruments for trading purposes.
NOTIONAL AMOUNTS AND CREDIT EXPOSURES OF DERIVATIVES
The notional amounts of derivative financial instruments summarized in
the tables which follow do not represent amounts exchanged between the parties
and, therefore, are not a measure of the Company's exposure resulting from its
use of derivatives. The amounts exchanged are calculated based on the notional
amounts and other terms of the instruments, which relate to interest rates,
exchange rates or other indices.
The Company is exposed to credit losses in the event of nonperformance
by counterparties to these financial instruments, but it does not expect any of
the counterparties to fail to meet its obligations. The credit exposure related
to these financial instruments is represented by the fair value of contracts
with a positive fair value at the reporting date, reduced by the effects of
master netting agreements. To manage credit risks, the Company selects
counterparties based on credit ratings, limits its exposure to a single
counterparty under defined guidelines, and monitors the market position of the
program and its relative market position with each counterparty. The Company
also maintains industry-standard security agreements with the majority of its
counterparties which may require the Company or the counterparty to post
collateral in certain situations. As of December 31, 1994, no collateral was
required under these agreements.
INTEREST RATE RISK MANAGEMENT
American enters into interest rate swap contracts to effectively
convert a portion of its fixed-rate obligations to floating-rate obligations.
Under the contracts, American agrees with other parties to exchange, at
specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated on a notional principal amount. Because American's
operating results tend to be better in economic cycles with relatively high
interest rates and its capital investments tend to be financed with long-term
fixed-rate instruments, interest rate swaps in which American pays the floating
rate and receives the fixed rate are used to reduce the impact of economic
cycles on American's net income.
The following table indicates the notional amounts and fair values of
the Company's interest rate swap agreements (in millions):
December 31,
--------------------------------------------------
1994 1993
------------------------ ----------------------
Notional Notional
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Interest rate swap agreements $ 1,980 $ (174) $ 1,405 $ (6)
The fair values represent the amount the Company would have to pay to
terminate the agreements at December 31, 1994 and 1993, respectively. The rise
in interest rates during 1994 resulted in a decrease in the market value of the
Company's fixed-rate debt obligations in excess of the decrease in the value of
the interest rate swap agreements.
At December 31, 1994, the weighted average remaining duration of the
interest rate swap agreements in effect was 4.6 years. The weighted average
floating rates and fixed rates on the contracts outstanding were:
December 31,
---------------------------
1994 1993
------ ------
Average floating rate 5.720% 3.415%
Average fixed rate 5.207% 4.985%
29
31
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
Floating rates are primarily based on LIBOR and may change significantly,
affecting future cash flows. The net impact of the interest rate swap program
on interest expense was a decrease of $14 million and $6 million in 1994 and
1993, respectively. The impact on the Company's weighted-average borrowing
rate for the periods presented is immaterial.
FUEL PRICE RISK MANAGEMENT
American enters into fuel swap contracts to protect against increases in
jet fuel prices. Under the agreements, American receives or makes payments
based on the difference between a fixed price and a variable price for certain
fuel commodities. At December 31, 1994, American had agreements with
broker-dealers to exchange payments on approximately 378 million gallons of
fuel products which represents approximately 14 percent of its expected 1995
fuel needs. The Company does not expect the fuel price hedging program to have
a material effect on liquidity. The fair value of the Company's fuel swap
agreements at December 31, 1994, representing the amount the Company would
receive to terminate the agreements, was immaterial.
FOREIGN EXCHANGE RISK MANAGEMENT
To hedge against the risk of future currency exchange rate fluctuations on
certain debt and lease obligations and related interest payable in foreign
currencies, the Company has entered into various foreign currency exchange
agreements. Changes in the value of the agreements due to exchange rate
fluctuations are offset by changes in the value of the foreign currency
denominated debt and lease obligations translated at the current rate. The net
fair values of the Company's currency exchange agreements, representing the
amount American would receive to terminate the agreements, were:
December 31,
-------------------------------------------------------------------
1994 1993
------------------------------ -----------------------------
Notional Fair Value Notional Fair Value
Amount (in millions) Amount (in millions)
-------- ------------- -------- -------------
Japanese Yen 25.6 billion $ 41 20.3 billion $ 18
The exchange rates on the Japanese Yen agreements range from 66.50 to
137.26 Yen per U.S. dollar.
At the present time, the Company has no significant unhedged exposure to
foreign currency denominated assets and liabilities.
30
32
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt were estimated using
quoted market prices, where available. For long-term debt not actively traded,
fair values were estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts and fair values of the Company's long-term
debt, including current maturities, were (in millions):
December 31,
-------------------------------------------------
1994 1993
--------------------- ---------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------- -------- -------
Long-term debt due to Parent $ 3,196 $ 2,917 $ 4,045 $ 3,722
6.08% - 9.60% notes 698 641 706 766
Variable rate indebtedness 606 605 507 507
7.10% - 9.25% bonds 181 187 181 197
Other 82 69 129 119
------- ------ ------- -------
$ 4,763 $ 4,419 $ 5,568 $ 5,311
======= ======= ======= =======
7. INCOME TAXES
American, as a wholly-owned subsidiary, is included in AMR's
consolidated tax return. American's provision (benefit) for income taxes has
been computed on the basis that American files separate consolidated income tax
returns with its subsidiaries.
The significant components of the income tax provision (benefit) were
(in millions):
Year Ended December 31,
----------------------------------------------
1994 1993 1992
---- ---- ----
Current $123 $ 55 $ (96)
Deferred 96 204 195
Benefit of operating loss carryforwards (45) (208) (221)
---- ----- -----
$174 $ 51 $(122)
==== ===== =====
The income tax provision (benefit) includes a federal income tax
provision of $146 million and $43 million for the years ended December 31, 1994
and 1993, respectively, and a federal income tax benefit of $114 million for the
year ended December 31, 1992.
In addition, a deferred tax benefit of $120 million was recognized for
the adjustment to the minimum pension liability in the year ended December 31,
1994.
Effective January 1, 1992, AMR adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," (FAS 109), changing
its method of accounting for income taxes. American was required to
simultaneously adopt the methodology used in FAS 109 in accordance with its tax
sharing agreement with AMR. As permitted under the new rules, prior years'
financial statements have not been restated to reflect the change in accounting
method. The cumulative effect of adopting FAS 109 decreased the net loss for
the year ended December 31, 1992, by $132 million.
31
33
7. INCOME TAXES (CONTINUED)
A deferred tax benefit of $320 million was recognized in the year ended
December 31, 1992, upon adoption of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" (FAS 106).
The income tax provision (benefit) differed from amounts computed at the
statutory federal income tax rate as follows (in millions):
Year Ended December 31,
----------------------------------------------
1994 1993 1992
---- ---- ----
Statutory income tax benefit $155 $26 $(135)
Meal expense 19 8 7
State income tax provision (benefit), net 13 3 (8)
Valuation allowance 3 (1) 8
Effect of rate change on deferred taxes - 10 -
Foreign tax credit carryforwards - - (8)
Other, net (16) 5 14
---- --- -----
Income tax provision (benefit) $174 $51 $(122)
==== === =====
The components of American's deferred tax assets and liabilities were (in
millions):
December 31,
----------------------------
1994 1993
------- -------
Deferred tax assets:
Postretirement benefits other than pensions $ 436 $ 379
Gains from lease transactions 267 285
Alternative minimum tax credit carryforwards 456 337
Operating loss carryforwards 474 429
Other 588 529
Valuation allowance (10) (7)
------- -------
Total deferred tax assets 2,211 1,952
------- -------
Deferred tax liabilities:
Accelerated depreciation and amortization (2,013) (1,697)
Pensions (5) (140)
Other (191) (184)
------- -------
Total deferred tax liabilities (2,209) (2,021)
------- -------
Net deferred tax asset (liability) $ 2 $ (69)
======= =======
At December 31, 1994, American had available for federal income tax
purposes approximately $456 million of alternative minimum tax credit
carryforwards available for an indefinite period, and approximately $1.35
billion of net operating loss carryforwards for regular tax purposes, which
expire as follows: 2007 - $640 million, 2008 - $572 million and 2009 - $142
million.
32
34
8. RETIREMENT BENEFITS
Substantially all employees of American are eligible to participate in
pension plans. The defined benefit plans provide benefits for participating
employees based on years of service and average compensation for a specified
period of time before retirement. Airline pilots and flight engineers also
participate in defined contribution plans for which company contributions are
determined as a percentage of participant compensation.
Total costs for all pension plans were (in millions):
Year Ended December 31,
------------------------------------------------
1994 1993 1992
----- ----- -----
Defined benefit plans:
Service cost - benefits earned during
the period $ 201 $ 167 $ 152
Interest cost on projected benefit obligation 292 285 268
Loss (return) on assets 232 (638) (229)
Net amortization and deferral (541) 356 (52)
----- ----- -----
Net periodic pension cost for defined
benefit plans 184 170 139
Defined contribution plans 119 118 108
Early retirement programs(1) 154 - -
----- ----- -----
Total $ 457 $ 288 $ 247
===== ===== =====
(1) In late 1994, American offered early retirement programs to select
groups of employees as a part of its restructuring efforts. In
accordance with FAS 88, American recognized additional pension
expense of $154 million associated with these programs. Of this
amount, $120 million was for special termination benefits and $34
million was for the actuarial loss resulting from the early
retirements.
33
35
8. RETIREMENT BENEFITS (CONTINUED)
The funded status and actuarial present value of benefit obligations of
the defined benefit plans were (in millions):
December 31,
------------------------------------------------------------------------
1994 1993
--------------------------------- -------------------------------
Plans with Plans with Plans with Plans with
Assets in Accumulated Assets in Accumulated
Excess of Benefit Excess of Benefit
Accumulated Obligation in Accumulated Obligation in
Benefit Excess of Benefit Excess of
Obligation Assets Obligation Assets
----------- ------------- ----------- -------------
Vested benefit obligation $1,063 $2,118 $3,100 $ 42
====== ====== ====== =====
Accumulated benefit obligation $1,113 $2,175 $3,239 $ 44
Effect of projected future
salary increases 251 308 703 18
------ ------ ------ -----
Projected benefit obligation 1,364 2,483 3,942 62
------ ------ ------ -----
Plan assets at fair value 1,161 2,144 3,542 8
Plan assets less than projected
benefit obligation (203) (339) (400) (54)
Unrecognized net loss 223 719 946 22
Unrecognized prior service cost
(benefit) 47 (46) (42) 7
Unrecognized transition asset (14) (44) (69) (1)
Adjustment to record minimum
pension liability - (329) - (11)
------ ------ ------ -----
Prepaid (accrued) pension
cost(1) $ 53 $ (39) $ 435 $ (37)
====== ====== ====== =====
(1) American's funding policy is to make contributions equal to, or in excess
of, the minimum funding requirements of the Employee Retirement Income
Security Act of 1974.
Plan assets consist primarily of government and corporate debt securities,
marketable equity securities, and money market fund and mutual fund shares, of
which approximately $141 million and $99 million of plan assets at December 31,
1994 and 1993, respectively, were invested in shares of mutual funds managed by
a subsidiary of AMR.
The projected benefit obligation was calculated using weighted average
discount rates of 8.75%, 7.50%, and 9.00% at December 31, 1994, 1993 and 1992,
respectively; rates of increase for compensation of 4.40% at December 31, 1994
and 1993, and 4.90% at December 31, 1992; and the 1983 Group Annuity Mortality
Table. The weighted average expected long- term rate of return on assets was
9.50% in 1994 and 10.50% in 1993 and 11.25% in 1992. The vested benefit
obligation and plan assets at fair value at December 31, 1994, for plans whose
benefits are guaranteed by the Pension Benefit Guaranty Corporation were $3.2
billion and $3.3 billion, respectively.
In addition to pension benefits, other postretirement benefits, including
certain health care and life insurance benefits, are also provided to retired
employees. The amount of health care benefits is limited to lifetime maximums
as outlined in the plan. Substantially all employees of American and employees
of certain other subsidiaries may become eligible for these benefits if they
satisfy eligibility requirements during their working lives.
34
36
8. RETIREMENT BENEFITS (CONTINUED)
Certain employee groups make contributions toward funding a portion of
their retiree health care benefits during their working lives. American funds
benefits as incurred and began, effective January 1993, to match employee
prefunding.
Effective January 1, 1992, American adopted FAS 106, changing the
method of accounting for these benefits. Prior to 1992, other postretirement
benefit expense was recognized by expensing health care claims incurred and
annual life insurance premiums. The cumulative effect of adopting FAS 106 as of
January 1, 1992, was a charge of $913 million ($593 million after tax).
Net other postretirement benefit cost was (in millions):
Year Ended December 31,
----------------------------------------
1994 1993 1992
---- ---- ----
Service cost - benefits earned during the period $ 62 $ 47 $ 42
Interest cost on accumulated other postretirement
benefit obligation 86 86 83
Return on assets (1) -
Net amortization and deferral (4) (4) -
---- ---- ----
Net other postretirement benefit cost $143 $129 $125
==== ==== ====
In addition to net other postretirement benefit cost, in late 1994, AMR
offered early retirement programs to select groups of employees as part of its
restructuring efforts. In accordance with FAS 106, American recognized
additional other postretirement benefit expense of $71 million associated with
these programs. Of this amount, $43 million was for special termination
benefits and $28 million was for the net actuarial loss resulting from the
early retirements.
The funded status of the plan, reconciled to the accrued other
postretirement benefit cost recognized in American's balance sheet, was (in
millions):
December 31,
---------------------------
1994 1993
------ ------
Retirees $ 542 $ 381
Fully eligible active plan participants 207 306
Other active plan participants 422 518
------ ------
Accumulated other postretirement benefit obligation 1,171 1,205
Plan assets at fair value 14 7
------ ------
Accumulated other postretirement benefit obligation
in excess of plan assets 1,157 1,198
Unrecognized net loss - (207)
Unrecognized prior service benefit 90 95
------ ------
Accrued other postretirement benefit cost $1,247 $1,085
====== ======
Plan assets consist primarily of shares of a mutual fund managed by a
subsidiary of AMR.
For 1994, future benefit costs were estimated assuming per capita cost
of covered medical benefits would increase at a 9 percent annual rate,
decreasing gradually to a 4 percent annual growth rate in 2000 and thereafter. A
1 percent increase in this annual trend rate would have increased the
accumulated other postretirement benefit obligation at December 31, 1994, by
approximately $100 million and 1994 other postretirement benefit cost by
approximately $19 million. In 1993, future benefit costs were estimated
assuming per capita cost of covered medical benefits would increase at an 11
percent annual rate, decreasing gradually to a 4 percent annual growth rate in
2000 and thereafter. The weighted average discount rate used
35
37
in estimating the accumulated other postretirement benefit obligation was 8.75%
and 7.50% at December 31, 1994 and 1993, respectively.
9. RESTRUCTURING COSTS
In 1994, the Company recorded $276 million for restructuring costs which
included (in millions):
Special termination benefits:
Pension $ 120
Other postretirement benefits 43
Actuarial losses:
Pension 34
Other postretirement benefits 28
-----
Total cost of early retirement programs 225
Other severance 28
Other 23
-----
$ 276
=====
Approximately 1,700 agents and 600 management employees elected early
retirement under programs offered to select groups of employees and will leave
the Company's workforce during 1995. Cash payments associated with the early
retirement programs will be expended as required for funding the appropriate
pension and other postretirement benefit plans in future years.
The $28 million severance provision is for additional workforce reductions
affecting approximately 2,300 agent and management personnel as a result of
scheduled service reductions and improved administrative efficiencies. Cash
outlays for severance payments are expected to occur substantially during 1995.
The remaining $23 million included in the restructuring costs represents
provisions for excess leased facilities and other restructuring activities.
Cash outlays of approximately $18 million are expected to occur over the
remaining lease terms.
10. REVENUE AND OTHER EXPENSE ITEMS
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 1994 was $59 million. Passenger revenues for 1993 include a $115
million positive adjustment resulting from a change in estimate relating to
certain earned passenger revenues.
Miscellaneous - net in 1993 includes a $125 million charge related to the
retirement of certain McDonnell Douglas DC-10 aircraft.
11. FOREIGN OPERATIONS
American conducts operations in various foreign countries. American's
operating revenues from foreign operations were (in millions):
Year Ended December 31,
------------------------------------------
1994 1993 1992
-------- ------- -------
Latin America $ 2,134 $ 1,888 $ 1,644
Europe 1,839 1,659 1,692
Pacific 347 362 343
-------- ------- -------
Foreign operating revenues $ 4,320 $ 3,909 $ 3,679
======== ======= =======
36
38
12. SEGMENT INFORMATION
American's operations fall within two industry segments: the Air
Transportation Group and the Information Services Group. For a description of
each of these groups, refer to Business on page 1.
The following table presents selected financial data by industry
segment (in millions):
Year Ended December 31,
-----------------------------------------------
1994 1993 1992
---- ---- ----
Air Transportation Group:
Revenues $14,108 $14,064 $12,973
Operating profit (loss) 570 307 (320)
Depreciation and amortization 966 949 797
Capital expenditures, including route
acquisition costs 731 1,704 3,070
Identifiable assets 17,073 17,024 16,724
Information Services Group:
Revenues $ 1,268 $ 1,167 $ 1,088
Operating profit 342 257 243
Depreciation and amortization 172 166 161
Capital expenditures 168 169 123
Identifiable assets 473 446 436
Identifiable assets are gross assets used by a business segment,
including an allocated portion of assets used jointly by more than one business
segment. General corporate and other assets not allocated to business segments
were $270 million, $279 million and $282 million at December 31, 1994, 1993 and
1992, respectively, and consist primarily of income tax assets.
Intergroup revenues consist of revenues earned by the Information
Services Group from the Air Transportation Group.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information and non-cash
activities (in millions):
Year Ended December 31,
-----------------------------------------------
1994 1993 1992
---- ---- ----
Cash payments (refunds) for:
Interest (net of interest capitalized) $406 $356 $231
Income taxes 34 (8) (10)
Financing activities not affecting cash:
Capital lease obligations incurred $280 $ - $264
Installment promissory notes issued for assets - - 162
37
39
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1994 and 1993 (in
millions):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1994
Operating revenues $3,508 $3,763 $3,890 $3,676
Operating income (loss) 104 373 471 (36)
Net earnings (loss) (3) 172 220 (121)
1993
Operating revenues $3,563 $3,952 $3,912 $3,310
Operating income (loss) 85 328 326 (175)
Net earnings (loss) (6) 67 129 (167)
Results for the fourth quarter of 1994 include $276 million in
restructuring costs, primarily representing the cost of early retirement
programs and severance for Air Transportation Group employees. During the
second quarter of 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 revenues for
the second, third and fourth quarters of 1994 was $35 million, $14 million, and
$10 million, as compared to the same quarters in 1993.
Results for the second quarter of 1993 include a $115 million positive
adjustment resulting from a change in estimate relating to certain earned
passenger revenues. Results for the second quarter of 1993 also include a $125
million charge related to the retirement of certain McDonnell Douglas DC-10
aircraft. Results for the fourth quarter of 1993 reflect the adverse impact of
a five-day strike by American's flight attendants as well as a $25 million
charge for the cost of severance of certain employees.
38
40
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted under the reduced disclosure format pursuant to General Instruction
J(2)(c) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted under the reduced disclosure format pursuant to General Instruction
J(2)(c) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted under the reduced disclosure format pursuant to General Instruction
J(2)(c) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted under the reduced disclosure format pursuant to General Instruction
J(2)(c) of Form 10-K.
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements listed in the accompanying index to
financial statements and schedules are filed as part of this
report.
(2) The schedules listed in the accompanying index to financial
statements and schedules are filed as part of this report.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
(Where the amount of securities authorized to be issued under
any of American's long-term debt agreements does not exceed
ten percent of American's assets, pursuant to paragraph
(b)(4) of Item 601 of Regulation S-K, in lieu of filing such
as an exhibit, American hereby agrees to furnish to the
Commission upon request a copy of any agreement with respect
to such long-term debt.)
EXHIBIT
3(a) Composite of the Certificate of Incorporation of
American, incorporated by reference to Exhibit 3(a)
to American's report on Form 10-K for the year ended
December 31, 1982, file number 1- 2691.
3(b) Amended Bylaws of American, incorporated by
reference to Exhibit 3(b) to American's report on
Form 10-K for the year ended December 31, 1990, file
number 1-2691.
10(a) Purchase Agreement, dated as of February 12, 1979,
between American and the Boeing Company, relating to
the purchase of Boeing Model 767-323 aircraft,
incorporated by reference to Exhibit 10(b)(3) to
American's Registration Statement No. 2-76709.
10(b) Description of American's Split Dollar Insurance
Program, dated December 28, 1977, incorporated by
reference to Exhibit 10(c)(1) to American's
Registration Statement No. 2-76709.
39
41
10(c) American's 1992 Incentive Compensation Plan.
10(d) 1979 American Airlines (AMR) Stock Option Plan, as
amended, incorporated by reference to Exhibit 10(d) to
American's report on Form 10-K for the year ended
December 31, 1982, file number 1-2691.
10(e) 1979 American Airlines (AMR) Stock Option Plan, as
amended, incorporated by reference to Exhibit 10(e) to
American's report on Form 10-K for the year ended
December 31, 1982, file number 1-2691.
10(f) Form of Stock Option Agreement for Corporate Officers
under the 1979 American Airlines (AMR) Stock Option
Plan, incorporated by reference to Exhibit 10(c)(5) to
American's Registration Statement No. 2-76709.
10(g) Form of Stock Option Agreement under the 1974 and 1979
American Airlines (AMR) Stock Option Plans,
incorporated by reference to Exhibit 10(c)(6) to
American's Registration Statement No. 2-76709.
10(h) Deferred Compensation Agreement, dated April 14, 1973,
as amended March 1, 1975, between American and Robert
L. Crandall, incorporated by reference to Exhibit
10(c)(7) to American's Registration Statement No.
2-76709.
10(i) Deferred Compensation Agreement, dated October 18,
1972, as amended March 1, 1975, between American and
Gene E. Overbeck, incorporated by reference to Exhibit
10(c)(9) to American's Registration Statement No.
2-76709.
10(j) Deferred Compensation Agreement, dated June 3, 1970,
between American and Francis H. Burr, incorporated by
reference to Exhibit 11(d) to American's Registration
Statement No. 2-39380.
10(k) Description of informal arrangement relating to
deferral of payment of directors' fees, incorporated by
reference to Exhibit 10(c)(11) to American's
Registration Statement No. 2- 76709.
10(l) Purchase Agreement, dated as of February 29, 1984,
between American and the McDonnell Douglas Corporation,
relative to the purchase of McDonnell Douglas Super 80
aircraft, incorporated by reference to Exhibit 10(l) to
American's report on Form 10-K for the year ended
December 31, 1983, file number 1-2691.
10(m) Purchase Agreement, dated as of June 27, 1983, between
American and the McDonnell Douglas Corporation,
relative to the purchase of McDonnell Douglas Super 80
aircraft, incorporated by reference to Exhibit 4(a)(8)
to American's Registration Statement No. 2-84905.
10(n) Form of Executive's Termination Benefits Agreement
incorporated by reference to Exhibit 10(p) to
American's report on Form 10-K for the year ended
December 31, 1985, file number 1-2691.
10(o) Amendment, dated June 4, 1986, to Purchase Agreement in
Exhibit 10(l) above, incorporated by reference to
Exhibit 10(l) to American's report on Form 10-K for the
year ended December 31, 1986, file number 1-2691.
10(p) Acquisition Agreement, dated as of March 1, 1987,
between American and Airbus Industrie relative to the
lease of Airbus A300-600R aircraft, incorporated by
reference to Exhibit 10(p) to American's report on Form
10-K for the year ended December 31, 1986, file number
1-2691.
40
42
10(q) Acquisition Agreement, dated as of March 1, 1987,
between American and the Boeing Company relative to
the lease of Boeing 767-323ER aircraft, incorporated
by reference to Exhibit 10(q) to American's report
on Form 10-K for the year ended December 31, 1986,
file number 1-2691.
10(r) Acquisition Agreement, dated as of July 21, 1988,
between American and the Boeing Company relative to
the purchase of Boeing Model 757-223 aircraft,
incorporated by reference to Exhibit 10(r) to
American's report on Form 10-K for the year ended
December 31, 1988, file number 1- 2691.
10(s) Acquisition Agreement, dated as of February 4, 1989,
among American and Delta Airlines, Inc. and others
relative to operation of a computerized reservations
system incorporated by reference to Exhibit 10(s) to
American's report on Form 10-K for the year ended
December 31, 1988, file number 1-2691.
10(t) Purchase Agreement, dated as of May 5, 1989, between
American and the Boeing Company relative to the
purchase of Boeing 757-223 aircraft, incorporated by
reference to Exhibit 10(t) to American's report on
Form 10-K for the year ended December 31, 1989, file
number 1-2691.
10(u) Purchase Agreement, dated as of June 9, 1989,
between American and Fokker Aircraft U. S. A., Inc.
relative to the purchase of Fokker 100 aircraft,
incorporated by reference to Exhibit 10(u) to
American's report on Form 10-K for the year ended
December 31, 1989, file number 1- 2691.
10(v) Purchase Agreement, dated as of June 23, 1989,
between American and the Boeing Company relative to
the purchase of Boeing 767-323ER aircraft,
incorporated by reference to Exhibit 10(v) to
American's report on Form 10-K for the year ended
December 31, 1989, file number 1-2691.
10(w) Purchase Agreement, dated as of August 3, 1989,
between American and the McDonnell Douglas
Corporation relative to the purchase of MD-11
aircraft, incorporated by reference to Exhibit 10(w)
to American's report on Form 10-K for the year ended
December 31, 1989, file number 1- 2691.
10(x) Amendment, dated as of August 3, 1989, to the
Purchase Agreement in Exhibit 10(l) above,
incorporated by reference to Exhibit 10(x) to
American's report on Form 10-K for the year ended
December 31, 1989, file number 1-2691.
10(y) Purchase Agreement, dated as of October 25, 1989,
between American and AVSA, S. A. R. L. relative to
the purchase of Airbus A300-600R aircraft,
incorporated by reference to Exhibit 10(y) to
American's report on Form 10-K for the year ended
December 31, 1989, file number 1- 2691.
10(z) Amendment, dated as of November 16, 1989, to
Employment Agreement among AMR Corporation, American
Airlines and Robert L. Crandall, incorporated by
reference to Exhibit 10(z) to American's report on
Form 10-K for the year ended December 31, 1989, file
number 1-2691.
10(aa) Management Severance Allowance, dated as of February
23, 1990, for levels 1-4 employees of American
Airlines, Inc., incorporated by reference to Exhibit
10(aa) to American's report on Form 10-K for the
year ended December 31, 1989, file number 1-2691.
41
43
10(bb) Management Severance Allowance, dated as of February
23, 1990, for level 5 and above employees of American
Airlines, Inc., incorporated by reference to Exhibit
10(bb) to American's report on Form 10-K for the year
ended December 31, 1989, file number 1-2691.
10(cc) Amendment, dated as of December 3, 1990, to Employment
Agreement among AMR Corporation, American Airlines and
Robert L. Crandall incorporated by reference to Exhibit
10(cc) to American's report on Form 10-K for the year
ended December 31, 1990, file number 1-2691.
10(dd) Amendment, dated as of May 1, 1992, to Employment
Agreement among American, American Airlines and Robert
L. Crandall incorporated by reference to Exhibit 10(dd)
to American's report on Form 10-Q for the period ended
June 30, 1992, file number 1-2691.
19 The 1974 and 1979 American Airlines (AMR) Stock Option
plans as amended March 16, 1983, incorporated by
reference to Exhibit 19 to American's report on Form
10-K for the year ended December 31, 1983, file number
1-2691. Refer to Exhibits 10(d) and 10(e).
23 Consent of Independent Auditors appears on page 44
hereof.
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
42
44
AMERICAN AIRLINES, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
COVERED BY REPORT OF INDEPENDENT AUDITORS
[ITEM 14(A)]
Page
----
FINANCIAL STATEMENTS
Report of Independent Auditors 18
Consolidated Statement of Operations for the Years Ended
December 31, 1994, 1993 and 1992 19
Consolidated Balance Sheet at December 31, 1994 and 1993 20-21
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992 22
Consolidated Statement of Stockholder's Equity for the Years Ended
December 31, 1994, 1993 and 1992 23
Notes to Consolidated Financial Statements 24-38
CONSOLIDATED SCHEDULES FOR THE YEARS ENDED
DECEMBER 31, 1994, 1993 AND 1992
Schedule II Valuation and Qualifying Accounts and Reserves 45-47
All other schedules are omitted since the required information is included in
the financial statements or notes thereto, or since the required information
is either not present or not present in sufficient amounts.
43
45
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post Effective Amendment No. 2
to the Registration Statement (Form S-3 No. 33-42998) of American Airlines,
Inc., and in the related Prospectuses, of our report dated February 13, 1995,
with respect to the consolidated financial statements and schedules of American
Airlines, Inc. included in this Annual Report (Form 10-K) for the year ended
December 31, 1994.
ERNST & YOUNG LLP
Dallas, Texas
March 22, 1995
44
46
AMERICAN AIRLINES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DEDUCTED FROM ASSET TO WHICH APPLICABLE)
YEAR ENDED DECEMBER 31, 1994
(IN MILLIONS)
CHARGED TO
---------------------------------- BALANCE
BALANCE AT OTHER DEPREC. NET SALES, AT
BEGINNING OPERATING AND WRITE- RETIREMENTS END OF
OF YEAR EXPENSES AMORT. MISC.-NET OFF AND TRANSFERS YEAR
-------- -------- ------ --------- --- ------------- ----
Allowance for
uncollectible accounts $ 26 $ 18 $ - $ - $ (30) $ - $ 14
Allowance for
obsolescence of inventories 162 - 28 - - (18) 171
Reserve for anticipated loss
on fleet retirement 50 - - 4 (34) - 20
45
47
AMERICAN AIRLINES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DEDUCTED FROM ASSET TO WHICH APPLICABLE)
YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS)
CHARGED TO
----------------------------------- BALANCE
BALANCE AT OTHER DEPREC. NET SALES, AT
BEGINNING OPERATING AND WRITE- RETIREMENTS END OF
OF YEAR EXPENSES AMORT. MISC.-NET OFF AND TRANSFERS YEAR
-------- -------- ------ --------- --- ------------- ----
Allowance for
uncollectible accounts $ 28 $ 19 $ - $ - $ (21) $ - $ 26
Allowance for
obsolescence of inventories 130 - 10 - - 22 162
Reserve for anticipated loss
on fleet retirement 20 - - 125 (83) (12) (a) 50
(a) Transfer to Allowance for obsolescence of inventories.
46
48
AMERICAN AIRLINES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DEDUCTED FROM ASSET TO WHICH APPLICABLE)
YEAR ENDED DECEMBER 31, 1992
(IN MILLIONS)
CHARGED TO
---------------------------------- BALANCE
BALANCE AT OTHER DEPREC. NET SALES, AT
BEGINNING OPERATING AND WRITE- RETIREMENTS END OF
OF YEAR EXPENSES AMORT. MISC.-NET OFF AND TRANSFERS YEAR
-------- -------- ------ --------- --- ------------- ----
Allowance for
uncollectible accounts $ 27 $ 19 $ - $ - $ (18) $ - $ 28
Allowance for
obsolescence of inventories 118 - 17 - (5) - 130
Reserve for anticipated loss
on fleet retirement 40 - - (7) (13) - 20
47
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ Robert L. Crandall
Robert L. Crandall
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Michael J. Durham
Michael J. Durham
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date:March 15, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates noted:
Directors:
/s/ Howard P. Allen /s/ Dee J. Kelly
Howard P. Allen Dee J. Kelly
/s/ Edward A. Brennan /s/ William Lyon
Edward A. Brennan William Lyon
/s/ David L. Boren /s/ Ann D. McLaughlin
David L. Boren Ann D. McLaughlin
/s/ Armando M. Codina /s/ Charles H. Pistor, Jr.
Armando M. Codina Charles H. Pistor, Jr.
/s/ Christopher F. Edley /s/ Joe M. Rodgers
Christopher F. Edley Joe M. Rodgers
/s/ Charles T. Fisher, III /s/ Maurice Segall
Charles T. Fisher, III Maurice Segall
/s/ Earl G. Graves /s/ Eugene F. Williams, Jr.
Earl G. Graves Eugene F. Williams, Jr.
Date:March 15, 1995
48
5
1,000,000
YEAR
DEC-31-1994
JAN-01-1994
DEC-31-1994
13
744
1,384
14
590
3,102
18,652
5,451
17,816
4,656
4,763
0
0
0
3,233
17,816
0
14,837
0
13,925
0
0
457
442
174
268
0
0
0
268
0
0
