1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2001.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to .
Commission file number 1-2691.
American Airlines, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-1502798
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (817) 963-1234
Not Applicable
(Former name, former address and former fiscal year , if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $1 par value - 1,000 shares as of August 1, 2001.
The registrant meets the conditions set forth in, and is filing
this form with the reduced disclosure format prescribed by,
General Instructions H(1)(a) and (b) of Form 10-Q.
2
INDEX
AMERICAN AIRLINES, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and six months ended
June 30, 2001 and 2000
Condensed Consolidated Balance Sheets -- June 30, 2001 and December
31, 2000
Condensed Consolidated Statements of Cash Flows -- Six months ended
June 30, 2001 and 2000
Notes to Condensed Consolidated Financial Statements -- June 30,
2001
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
3
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Revenues
Passenger - American Airlines $ 3,974 $ 4,191 $ 7,909 $ 7,965
- TWA LLC 671 - 671 -
Cargo 188 177 362 343
Other revenues 315 242 584 504
Total operating revenues 5,148 4,610 9,526 8,812
Expenses
Wages, salaries and benefits 2,008 1,570 3,640 3,084
Aircraft fuel 802 539 1,472 1,066
Depreciation and amortization 316 261 594 517
Other rentals and landing fees 298 237 534 453
Maintenance, materials and
repairs 246 224 480 446
Commissions to agents 244 256 456 498
Food service 217 197 398 379
Aircraft rentals 218 140 358 280
Asset impairment charge 586 - 586 -
Other operating expenses 914 715 1,721 1,432
Total operating expenses 5,849 4,139 10,239 8,155
Operating Income (Loss) (701) 471 (713) 657
Other Income (Expense)
Interest income 22 34 44 64
Interest expense (93) (69) (169) (139)
Interest capitalized 35 33 74 69
Related party interest - net (11) 1 (22) 6
Miscellaneous - net 36 54 30 48
(11) 53 (43) 48
Earnings (Loss) Before
Income Taxes (712) 524 (756) 705
Income tax provision (benefit) (257) 200 (267) 276
Net Earnings (Loss) $(455) $ 324 $ (489) $ 429
The accompanying notes are an integral part of these financial statements.
-1-
4
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
June 30, December 31,
2001 2000
Assets
Current Assets
Cash $ 261 $ 86
Short-term investments 1,197 1,549
Receivables, net 1,624 1,242
Inventories, net 787 656
Deferred income taxes 674 675
Other current assets 436 186
Total current assets 4,979 4,394
Equipment and Property
Flight equipment, net 12,952 12,081
Other equipment and property, net 1,807 1,607
Purchase deposits for flight equipment 1,483 1,590
16,242 15,278
Equipment and Property Under Capital Leases
Flight equipment, net 1,624 1,252
Other equipment and property, net 95 96
1,719 1,348
Route acquisition costs and airport
operating and gate lease rights, net 1,373 1,103
Other assets, net 2,239 1,038
$ 26,552 $ 23,161
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 1,419 $ 1,178
Accrued liabilities 2,209 2,067
Air traffic liability 3,429 2,696
Payable to affiliates, net 796 511
Current maturities of long-term debt 168 108
Current obligations under capital leases 286 201
Total current liabilities 8,307 6,761
Long-term debt, less current maturities 3,923 2,601
Obligations under capital leases,
less current oblogations 1,472 1,163
Deferred income taxes 2,035 2,080
Postretirement benefits 2,399 1,706
Other liabilities, deferred gains
and deferred credits 2,396 2,415
Stockholder's Equity
Common stock - -
Additional paid-in capital 1,847 1,847
Accumulated other comprehensive income 70 (2)
Retained earnings 4,103 4,590
6,020 6,435
$ 26,552 $ 23,161
The accompanying notes are an integral part of these financial
statements.
-2-
5
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
Six Months Ended June 30,
2001 2000
Net Cash Provided by Operating Activities $ 732 $ 1,829
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (1,924) (1,686)
Acquisition of Trans World Airlines, Inc. (742) -
Other investments and miscellaneous (6) (15)
Net decrease (increase) in
short-term investments 352 (560)
Proceeds from:
Sale of equipment and property 204 132
Sale of other investments - 94
Net cash used for investing activities (2,116) (2,035)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (159) (137)
Proceeds from issuance of long-term debt 1,433 102
Funds transferred from affiliates, net 285 296
Net cash provided by financing activities 1,559 261
Net increase in cash 175 55
Cash at beginning of period 86 72
Cash at end of period $ 261 $ 127
The accompanying notes are an integral part of these financial
statements.
-3-
6
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, these financial statements contain all
adjustments, consisting of both normal recurring accruals and the
asset impairment charge discussed in footnote 8, necessary to
present fairly the financial position, results of operations and
cash flows for the periods indicated. Results of operations for
the periods presented herein are not necessarily indicative of
results of operations for the entire year. The balance sheet at
December 31, 2000 has been derived from the audited financial
statements at that date. For further information, refer to the
consolidated financial statements and footnotes thereto included in
the American Airlines, Inc. (American or the Company) Annual Report
on Form 10-K for the year ended December 31, 2000. Certain amounts
have been reclassified to conform with the 2001 presentation.
2.Accumulated depreciation of owned equipment and property at June
30, 2001 and December 31, 2000, was $8.2 billion and $7.8 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at June 30, 2001 and December 31, 2000, was $1.0
billion.
3.As discussed in the notes to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000, the Miami International Airport
Authority is currently investigating and remediating various
environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through various cost
recovery methods. American has been named as potentially
responsible party (PRP) and contributor to the contamination.
During the second quarter of 2001, the Airport filed a lawsuit
against 17 defendants, including the Company, in an attempt to
recover its past and future cleanup costs (Miami-Dade County,
Florida v. Advance Cargo Services, Inc., et al. in the Florida
Circuit Court). In addition to the 17 defendants named in the
lawsuit, 243 other agencies and companies were also named as PRPs
and contributors to the contamination. The Company's portion of
the cleanup costs cannot be reasonably estimated due to various
factors, including the unknown extent of the remedial actions that
may be required, the proportion of the cost that will ultimately be
recovered from the responsible parties, and uncertainties regarding
the environmental agencies that will ultimately supervise the
remedial activities and the nature of that supervision. In addition,
the Company is subject to environmental issues at various other
airport and non-airport locations. Management believes, after
considering a number of factors, that the ultimate disposition of
these environmental issues is not expected to materially affect the
Company's consolidated financial position, results of operations or
cash flows. Amounts recorded for environmental issues are based on
the Company's current assessments of the ultimate outcome and,
accordingly, could increase or decrease as these assessments
change.
4.As of June 30, 2001, the Company had commitments to acquire the
following aircraft: 55 Boeing 737-800s, 19 Boeing 757-200s, 15 Boeing
767-300ERs and 12 Boeing 777-200ERs. Deliveries of all aircraft
continue through 2004. Payments for all aircraft will approximate
$1.2 billion during the remainder of 2001, $1.6 billion in 2002, $1.0
billion in 2003 and approximately $100 million in 2004.
5.During 2001, American entered into various debt agreements which
are secured by aircraft. Effective interest rates on these agreements
are fixed or variable (based on LIBOR plus a spread) and mature over
various periods of time, ranging from 2013 to 2021. As of June 30,
2001, the Company had borrowed approximately $1.43 billion under these
agreements.
6.In April 2001, the Board of Directors of American approved the
guarantee by American of AMR's existing debt obligations. As such, as
of June 30, 2001, American will unconditionally guarantee through the
life of the related obligations approximately $700 million of
unsecured debt, approximately $700 million of secured debt and
approximately $1.6 billion of special facility revenue bonds issued by
municipalities.
-4-
7
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
7.On April 9, 2001, the Company purchased substantially all of the
assets of Trans World Airlines, Inc. (TWA) for approximately $742
million in cash (subject to certain working capital adjustments) and
assumed certain liabilities, including TWA's postretirement benefit
other than pension liability. The $742 million includes the $625
million purchase price paid to TWA and various other acquisition
costs, primarily the purchase of aircraft security deposits and
prepaid rent. TWA was the eighth largest U.S. carrier, with a primary
domestic hub in St. Louis. The Company funded the acquisition of
TWA's assets with its existing cash and short-term investments. The
acquisition of TWA was accounted for under the purchase method of
accounting and, accordingly, the operating results of TWA since the
date of acquisition have been included in the accompanying
consolidated financial statements for the three and six-month periods
ended June 30, 2001.
The accompanying consolidated financial statements reflect the
preliminary allocation of the purchase price, which was based on
estimated fair values of the assets acquired and liabilities
assumed, and is subject to adjustments when additional information
concerning asset and liability valuations are finalized. The
preliminary excess purchase price over the estimated fair values of
the net assets acquired resulted in goodwill in excess of $800
million, which is being amortized on a straight-line basis over 40
years. However, effective January 1, 2002, the Company will
discontinue the amortization of goodwill in accordance with
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets."
The following table provides unaudited pro forma consolidated
results of operations, assuming the acquisition had occurred as of
January 1, 2000 (in millions):
Six Months Ended
June 30,
2001 2000
Operating revenues $10,424 $10,640
Net earnings (loss) (470) 478
The unaudited pro forma consolidated results of operations have
been prepared for comparative purposes only. These amounts are not
indicative of the combined results which would have occurred had
the transaction actually been consummated on the date indicated
above and are not indicative of the consolidated results of
operations which may occur in the future.
-5-
8
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
8.In conjunction with the acquisition of TWA and the proposed
transactions announced on January 10, 2001, coupled with a revision
to the Company's fleet plan to accelerate the retirement dates of
its Fokker 100 aircraft, the Company determined that the estimated
future undiscounted cash flows expected to be generated by its
Fokker 100 aircraft would be less than their carrying amount and
therefore, these aircraft were impaired under Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" (SFAS 121). As a result, during the second quarter of
2001, the Company recorded an asset impairment charge of
approximately $586 million ($368 million after-tax) relating to the
write-down of the carrying value of 71 Fokker 100 aircraft and
related rotables to their estimated fair market values. Management
estimated the undiscounted future cash flows utilizing models used
by the Company in making fleet and scheduling decisions. In
addition, in determining the fair market value of these aircraft,
the Company considered outside third party appraisals and recent
transactions involving sales of similar aircraft. As a result of
the writedown of these aircraft to fair market value, as well as
the acceleration of their retirement dates and changes in salvage
values, depreciation and amortization expense will decrease by
approximately $18 million on an annualized basis.
9.During the second quarter of 2001, the Company changed the manner
in which it measured ineffectiveness for its fuel option contracts.
Effective June 1, 2001, the measurement is based on the change in
the total value of the option relative to the change in the value
of the fuel being hedged. In conjunction therewith, the Company
reclassified the ineffective component of its fuel hedge agreements
from other income (expense) to fuel expense on the accompanying
consolidated statements of operations.
For the three and six months ended June 30, 2001, the Company
recognized net gains of approximately $11 million and $35 million,
respectively, as a component of fuel expense on the accompanying
consolidated statements of operations related to its fuel hedging
agreements. This compares to net gains recognized by the Company
of approximately $105 million and $220 million, respectively, for
the three and six months ended June 30, 2000. (The amounts for
2001 and 2000 are not comparable in that the 2001 amounts reflect
the January 1, 2001 adoption of Statement of Financial Accounting
Standards No. 133 (SFAS 133); the 2000 amounts do not.) The fair
value of the Company's fuel hedging agreements at June 30, 2001,
representing the amount the Company would receive to terminate the
agreements, totaled $203 million.
10.The Company includes unrealized gains and losses on available-for-
sale securities, changes in minimum pension liabilities and changes in
the fair value of certain derivative financial instruments which
qualify for hedge accounting in comprehensive income (loss). For the
three and six months ended June 30, 2001, comprehensive loss was $457
million and $417 million, respectively. The difference between net
loss and comprehensive loss for the six months ended June 30, 2001 is
due primarily to the cumulative effect of the adoption of SFAS 133 and
the on-going fair value adjustments of derivative financial
instruments under SFAS 133, net of the reclassification into earnings
of the Company's derivative financial instruments.
As of June 30, 2001, the Company estimates during the next twelve
months it will reclassify from accumulated other comprehensive
income into earnings approximately $60 million (net of tax of $35
million) relating to its derivative financial instruments.
11.During 1999, the Company entered into an agreement with
priceline.com Incorporated (priceline) whereby ticket inventory
provided by the Company may be sold through priceline's e-commerce
system. In conjunction with this agreement, the Company received
warrants to purchase approximately 5.5 million shares of priceline
common stock. In the second quarter of 2000, the Company sold
these warrants for proceeds of approximately $94 million, and
recorded a pre-tax gain of $57 million ($36 million after-tax),
which is included in Miscellaneous - net on the consolidated
statements of operations.
-6-
9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
For the Six Months Ended June 30, 2001 and 2000
Summary The Company recorded a net loss for the six months ended June
30, 2001 of $489 million. This compares with net earnings of $429
million for the same period in 2000. The Company's operating loss
for the six months ended June 30, 2001 was $713 million, compared to
operating income of $657 million for the same period in 2000. As
discussed in footnote 7 to the condensed consolidated financial
statements, on April 9, 2001, the Company purchased substantially all
of the assets and assumed certain liabilities of Trans World
Airlines, Inc. (TWA). Accordingly, the operating results of TWA
since the date of acquisition have been included in the accompanying
consolidated financial statements for the six month period ended June
30, 2001. In addition, AMR's 2001 results include: (i) a $368
million after-tax charge related to the writedown of the carrying value
of its Fokker 100 aircraft and related rotables in accordance with
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (see footnote 8 to the condensed
consolidated financial statements), and (ii) a $29 million after-tax
gain from the settlement of a legal matter related to the Company's
1999 labor disruption. AMR's 2000 results include an approximate $36
million after-tax gain related to the sale of the Company's warrants
to purchase 5.5 million shares of priceline.com Incorporated
(priceline) common stock.
The Company's revenues increased approximately $714 million, or 8.1
percent, during the first six months of 2001 versus the same period
last year. However, excluding TWA's revenues for the period April
10, 2001 through June 30, 2001, the Company's revenues would have
decreased by approximately $31 million versus the same period last
year. The Company's 2001 results were impacted by a slowing U.S.
economy, dampening the demand for business travel both domestically
and internationally.
American's passenger revenues decreased by 0.7 percent, or $56
million. American's yield of 14.13 cents increased by 1.9 percent
compared to the same period in 2000. Domestic yields increased 2.0
percent from the first six months of 2000. International yields
increased 2.5 percent, reflecting an increase of 5.3 percent and 1.4
percent in Latin American and European yields, respectively,
partially offset by a decrease of 7.3 percent in Pacific yields.
Yields were up year-over-year largely due to fare increases enacted
over the course of 2000, which more than offset the increase in fare
sale activity during the second quarter of 2001.
American's traffic or revenue passenger miles (RPMs) decreased 2.6
percent to 56.0 billion miles for the six months ended June 30, 2001.
American's capacity or available seat miles (ASMs) decreased 0.2
percent to 80.0 billion miles for the first six months of 2001.
American's domestic traffic decreased 4.2 percent on a capacity
decrease of 0.3 percent while international traffic increased 0.8
percent on capacity increases of 0.2 percent. International activity
included a 12.4 percent increase in traffic to the Pacific on a
capacity increase of 7.5 percent, a 0.7 percent decrease in traffic
to Europe on a capacity increase of 2.8 percent, and a 0.4 percent
decrease in traffic to Latin America on a capacity decrease of 3.3
percent. The slight decrease in overall capacity year-over-year was
due primarily to the Company's More Room Throughout Coach program,
which offset the addition of new aircraft.
TWA's passenger revenues were $671 million for the period April 10,
2001 through June 31, 2001. TWA's traffic was 5.7 billion RPMs while
capacity was 8.0 billion ASMs.
Other revenues increased $80 million, or 15.9 percent, due primarily
to the addition of TWA.
-7-
10
RESULTS OF OPERATIONS (Continued)
The Company's operating expenses increased 25.6 percent, or
approximately $2.1 billion, and included approximately $757 million
related to TWA's operations for the period April 10, 2001 through
June 30, 2001. American's cost per ASM increased by 9.2 percent to
11.12 cents, excluding the impact of the second quarter 2001 asset
impairment charge. The increase in American's cost per ASM was
driven partially by a reduction in ASMs due to the Company's More
Room Throughout Coach program. Adjusted for this program, American's
cost per ASM grew approximately 4.5 percent, excluding the asset
impairment charge. Wages, salaries and benefits increased 18.0
percent, or $556 million, and included approximately $286 million
related to the addition of TWA. The remaining increase of
approximately $270 million related primarily to an increase in the
average number of equivalent employees and contractual wage rate and
seniority increases that are built into the Company's labor
contracts. During the six months ended June 30, 2001, the Company
recorded approximately $200 million in additional wages, salaries and
benefits related to the Company's tentative labor contracts. This
was mostly offset by a $177 million decrease in the provision for
profit-sharing as compared to the corresponding period in the prior
year. Aircraft fuel expense increased 38.1 percent, or $406 million,
and included approximately $121 million related to the addition of
TWA. The increase in aircraft fuel expense was due to a 23.6 percent
increase in the Company's average price per gallon and an 11.8
percent increase in the Company's fuel consumption, including TWA.
Depreciation and amortization expense increased 14.9 percent, or $77
million, due primarily to the addition of new aircraft and an
increase of approximately $25 million related to TWA. Other rentals
and landing fees increased $81 million, or 17.9 percent, primarily
due to the addition of TWA. Commissions to agents decreased 8.4
percent, or $42 million, and included approximately $31 million
related to TWA. Despite an increase of approximately 7.7 percent in
combined passenger revenues - including TWA - the Company continued
to benefit from commission structure changes implemented in 2000 and
a decrease in the percentage of commissionable transactions.
Aircraft rentals increased $78 million, or 27.9 percent, due to the
addition of TWA aircraft. The asset impairment charge of $586
million relates to the writedown of the carrying value of the Company's
Fokker 100 aircraft and related rotables (see footnote 8 to the condensed
consolidated financial statements). Other operating expense increased 20.2
percent, or $289 million, and included approximately $131 million
related to TWA. The remaining increase is due primarily to increases
in data processing, outsourced services, travel and incidental, and
external contract maintenance costs.
Interest income decreased $20 million, or 31.3 percent, due primarily
to the Company's lower investment balances. Interest expense
increased $30 million, or 21.6 percent, resulting primarily from an
increase in long-term debt. Related party interest - net increased
approximately $28 million due to affiliate intercompany payable
balances with American. Miscellaneous-net decreased approximately
$18 million, or 37.5 percent, reflecting the $57 million gain on sale
of the Company's warrants to purchase 5.5 million shares of priceline
common stock in the second quarter of 2000 versus a $45 million gain
during the second quarter of 2001 from the settlement of a legal
matter related to the Company's 1999 labor disruption.
AIRCRAFT INFORMATION
As of June 30, 2001, the Company had commitments to acquire the
following aircraft: 55 Boeing 737-800s, 19 Boeing 757-200s, 15 Boeing
767-300ERs and 12 Boeing 777-200ERs. Deliveries of all aircraft
continue through 2004. Payments for all aircraft will approximate
$1.2 billion during the remainder of 2001, $1.6 billion in 2002, $1.0
billion in 2003 and approximately $100 million in 2004. The Company
expects to fund its remaining 2001 capital expenditures from the
Company's existing cash and short-term investments, internally
generated cash and new financing depending upon market conditions and
the Company's evolving view of its long-term needs.
-8-
11
OTHER INFORMATION
The Company announced in January 2001 that it had agreed to acquire
or lease from United Airlines, Inc. (United) certain key strategic
assets (slots, gates and aircraft) of US Airways Group, Inc. (US
Airways) and to jointly operate the northeast Shuttle (New
York/Washington/Boston) with United upon the consummation of the
previously announced merger between United and US Airways. In
addition, American announced that it had agreed to acquire a 49
percent stake in, and to enter into an exclusive marketing agreement
with, D.C. Air, LLC (D.C. Air).
On July 27, 2001, United and US Airways announced that they had
agreed to terminate the merger agreement between them. Upon
termination of that merger agreement, the agreement between American
and United automatically terminated. In addition, as the
transactions between American and D.C. Air were contingent upon the
closing of the United-US Airways merger, the transactions between
American and D.C. Air discussed above will not be consummated.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, "Business
Combinations" (SFAS 141) and No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142). SFAS 141 prohibits the use of the pooling-of-
interests method for business combinations initiated after June 30,
2001 and includes criteria for the recognition of intangible assets
separately from goodwill. SFAS 142 includes the requirement to test
goodwill and indefinite lived intangible assets for impairment rather
than amortize them. The Company will adopt SFAS 142 in the first
quarter of 2002, and currently estimates discontinuing the
amortization of approximately $59 million on an annualized basis. The
Company is currently evaluating what additional impact these new
accounting standards may have on the Company's financial position or
results of operations.
FORWARD-LOOKING INFORMATION
Statements in this report contain various forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs
concerning future events. When used in this report, the words
"expects," "plans," "anticipates," and similar expressions are
intended to identify forward-looking statements. All forward-looking
statements in this report are based upon information available to the
Company on the date of this report. The Company undertakes no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise. Forward-looking statements are subject to a number of
factors that could cause actual results to differ materially from our
expectations. Additional information concerning these and other
factors is contained in the Company's Securities and Exchange
Commission filings, included but not limited to the Form 10-K for the
year ended December 31, 2000.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in market risk from the
information provided in Item 7A. Quantitative and Qualitative
Disclosures About Market Risk of the Company's Annual Report on Form
10-K for the year ended December 31, 2000, except as discussed below.
Based on projected fuel usage for the next twelve months, including
the Company's estimated fuel consumption for TWA, a hypothetical 10
percent increase in the June 30, 2001 cost per gallon of fuel would
result in an increase in the Company's aircraft fuel expense of
approximately $200 million for the next twelve months, net of fuel
hedge instruments outstanding at June 30, 2001. The change in market
risk from December 31, 2000 is due primarily to the additional fuel
consumption of TWA, partially offset by a decrease in fuel prices. As
of June 30, 2001, the Company, including the estimated fuel
consumption of TWA, has hedged approximately 43 percent of its
remaining 2001 fuel requirements, 28 percent of its 2002 fuel
requirements, and 16 percent of its 2003 fuel requirements.
-9-
12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On July 26, 1999, a class action lawsuit was filed, and in November
1999 an amended complaint was filed, against AMR Corporation,
American Airlines, Inc., AMR Eagle Holding Corporation, Airlines
Reporting Corporation, and the Sabre Group Holdings, Inc. in the
United States District Court for the Central District of California,
Western Division (Westways World Travel, Inc. v. AMR Corp., et al.).
The lawsuit alleges that requiring travel agencies to pay debit memos
to American for violations of American's fare rules (by customers of
the agencies) (1) breaches the Agent Reporting Agreement between
American and American Eagle and plaintiffs, (2) constitutes unjust
enrichment, and (3) violates the Racketeer Influenced and Corrupt
Organizations Act of 1970 (RICO). The as yet uncertified class
includes all travel agencies who have been or will be required to pay
monies to American for debit memos for fare rules violations from
July 26, 1995 to the present. Plaintiffs seek to enjoin American
from enforcing the pricing rules in question and to recover the
amounts paid for debit memos, plus treble damages, attorneys' fees,
and costs. Defendants' motion to dismiss all claims is pending.
American intends to vigorously defend the lawsuit. Although the
Company believes that the litigation is without merit, adverse court
decisions could impose restrictions on American's ability to respond
to competitors, and American's business may be adversely impacted.
On May 13, 1999, the United States (through the Antitrust Division
of the Department of Justice) sued AMR Corporation, American
Airlines, Inc., and AMR Eagle Holding Corporation in federal court in
Wichita, Kansas. The lawsuit alleges that American unlawfully
monopolized or attempted to monopolize airline passenger service to
and from Dallas/Fort Worth International Airport (DFW) by increasing
service when new competitors began flying to DFW, and by matching
these new competitors' fares. The Department of Justice seeks to
enjoin American from engaging in the alleged improper conduct and to
impose restraints on American to remedy the alleged effects of its
past conduct. On April 27, 2001, the U.S. District Court for the
District of Kansas granted American's motion for summary judgment.
On June 26, 2001, the U.S. Department of Justice appealed the
granting of American's motion for summary judgment. The government
has requested that the 10th Circuit Court of Appeals set the
following briefing schedule: the government's brief to be filed on
September 28, 2001; American's response to be filed November 20,
2001; and the government's reply to be filed on December 11, 2001.
American did not oppose the government's request. No date has been
set for oral argument. American intends to defend the lawsuit
vigorously.
Between May 14, 1999 and June 7, 1999, seven class action lawsuits
were filed against AMR Corporation, American Airlines, Inc., and AMR
Eagle Holding Corporation in the United States District Court in
Wichita, Kansas seeking treble damages under federal and state
antitrust laws, as well as injunctive relief and attorneys' fees
(King v. AMR Corp., et al.; Smith v. AMR Corp., et al.; Team Electric
v. AMR Corp., et al.; Warren v. AMR Corp., et al.; Whittier v. AMR
Corp., et al.; Wright v. AMR Corp., et al.; and Youngdahl v. AMR
Corp., et al.). Collectively, these lawsuits allege that American
unlawfully monopolized or attempted to monopolize airline passenger
service to and from DFW by increasing service when new competitors
began flying to DFW, and by matching these new competitors' fares.
Two of the suits (Smith and Wright) also allege that American
unlawfully monopolized or attempted to monopolize airline passenger
service to and from DFW by offering discounted fares to corporate
purchasers, by offering a frequent flyer program, by imposing certain
conditions on the use and availability of certain fares, and by
offering override commissions to travel agents. The suits propose to
certify several classes of consumers, the broadest of which is all
persons who purchased tickets for air travel on American into or out
of DFW since 1995 to the present. On November 10, 1999, the District
Court stayed all of these actions pending developments in the case
brought by the Department of Justice. As a result, to date no class
has been certified. American intends to defend these lawsuits
vigorously.
-10-
13
Item 1. Legal Proceedings (Continued)
In June 2001, the named plaintiff in a class action lawsuit, Hall
v. United Airlines, et al., No. 7:00 CV 123-BR(1), sought leave to
file an amended complaint that would substantially increase the size
and scope of the pending litigation. The Hall case was originally
filed in the United States District Court for the Eastern District of
North Carolina against American and other airlines, and alleged that
during 1999, American and the other defendant airlines conspired to
reduce commissions paid to U.S.-based travel agents in violation of
Section 1 of the Sherman Act. The proposed amended complaint seeks
to add additional named plaintiffs and defendants, and to add
allegations that American and other airlines also conspired to reduce
commission rates from 10 percent to 8 percent in September 1997 and
to cap commissions for international travel at $50 each way in
October 1998. Plaintiff's motion for leave to amend is pending, and
no class has yet been certified. American is vigorously defending
the lawsuit.
The Miami International Airport Authority is currently
investigating and remediating various environmental conditions at the
Miami International Airport (the Airport) and funding the remediation
costs through various cost recovery methods. American Airlines, Inc.
and AMR Eagle have been named as potentially responsible parties
(PRPs) and contributors to the contamination. During the second
quarter of 2001, the Airport filed a lawsuit against 17 defendants,
including American Airlines, Inc., in an attempt to recover its past
and future cleanup costs (Miami-Dade County, Florida v. Advance Cargo
Services, Inc., et al. in the Florida Circuit Court). In addition to
the 17 defendants named in the lawsuit, 243 other agencies and
companies were also named as PRPs and contributors to the
contamination. American and AMR Eagle's portion of the cleanup costs
cannot be reasonably estimated due to various factors, including the
unknown extent of the remedial actions that may be required, the
proportion of the cost that will ultimately be recovered from the
responsible parties, and uncertainties regarding the environmental
agencies that will ultimately supervise the remedial activities and
the nature of that supervision. American is vigorously defending the
lawsuit.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
12 Computation of ratio of earnings to fixed charges for the three
and six months ended June 30, 2001 and 2000.
Form 8-Ks filed under Item 5 - Other Events
On April 11, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to a press release issued to announce the completion of
American Airlines, Inc. acquisition of Trans World Airways, Inc.
On April 12, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to a press release issued by AMR to report all debt
obligations of AMR and American Airlines, Inc. remain investment
grade.
On April 19, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to a press release issued by AMR to report AMR's first
quarter 2001 earnings.
On April 24, 2001, American Airlines, Inc. filed a report on Form 8-K
to report that based upon preliminary information received from
Trans World Airways, Inc., the Company does not believe the
acquisition of Trans World Airways, Inc. represents a significant
acquisition as defined in Regulation S-X.
On April 30, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to two press releases issued to announce: (i) American
Airlines, Inc. was granted its motion for summary judgment in the U.S.
Government's 1999 civil lawsuit alleging predatory pricing by American
Airlines, Inc., and (ii) American Airlines, Inc. has reached an
agreement with the Allied Pilots Association (APA) on a settlement to
the outstanding $45.5 million contempt damage award levied against the
APA.
On May 10, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to a press release issued to report that American Airlines,
Inc. has placed an order for 15 new GE-powered Boeing 767-300ER
widebody aircraft.
-11-
14
Item 6. Exhibits and Reports on Form 8-K (Continued)
On May 11, 2001, American Airlines, Inc. filed a report on Form 8-K
to provide information discussed at the May 10, 2001 security analyst
meeting hosted by AMR to discuss the expected impact to AMR of the
acquisition of Trans World Airlines, Inc.
On May 24, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to a press release issued to announce that American Airlines,
Inc. would accept binding arbitration proffered by the National
Medication Board to settle contract negotiations with the Association
of Professional Flight Attendants.
On May 31, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to a press release issued in response to the Association of
Professional Flight Attendants' (APFA) rejection of the National
Mediation Board's proffer of binding arbitration to resolve the
remaining contract issues of the APFA.
On June 18, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to a press release issued to announce: (i) a reduction in
American Airlines, Inc. capacity resulting from a sluggish U.S.
economy, (ii) AMR expects its second quarter loss to exceed $100
million, and (iii) AMR will take an after-tax charge of approximately
$425 million in the second quarter 2001 to write down certain
aircraft.
On June 26, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to a press release issued in response to the White House
announcement of the appointment of a Presidential Emergency Board to
intervene in American's negotiations with the Association of
Professional Flight Attendants if a negotiated settlement has not been
reached by 12:01a.m. EDT on July 1, 2001.
Form 8-Ks furnished under Item 9 - Regulation FD Disclosure
On May 4, 2001, American Airlines, Inc. filed a report on Form 8-K
to announce AMR will host a security analyst meeting on May 10,
2001 to discuss the Trans World Airlines, Inc. acquisition and
provide updated information on how the Trans World Airlines, Inc.
transaction is expected to impact AMR.
On May 23, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to certain data regarding its unit costs, capacity,
traffic and fuel, and a monthly update.
On May 31, 2001, American Airlines, Inc. filed a report on Form 8-K
to announce that AMR's Chairman and CEO Don Carty will be speaking
at Merrill Lynch's Eighth Annual Global Transportation Leaders
Conference on June 4, 2001.
-12-
15
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN AIRLINES, INC.
Date: August 13, 2001 BY: /s/ Thomas W. Horton
Thomas W. Horton
Senior Vice President - Finance and
Planning and Chief Financial Officer
-13-
16
Exhibit 12
AMERICAN AIRLINES, INC.
Computation of Ratio of Earnings to Fixed Charges
(in millions)
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
Earnings:
Earnings (loss) before income taxes $(712) $524 $(756) $705
Add: Total fixed charges
(per below) 381 270 668 534
Less: Interest capitalized 35 33 74 69
Total earnings (loss) $(366) $761 $(162) $1,170
Fixed charges:
Interest, including interest
capitalized $103 $ 69 $ 190 $ 139
Portion of rental expense
representative of the
interest factor 277 201 476 394
Amortization of debt expense 1 - 2 1
Total fixed charges $381 $270 $668 $534
Ratio of earnings to fixed charges - 2.82 - 2.19
Coverage deficiency $747 - $830 -
Note: In April 2001, the Board of Directors of American approved
the guarantee by American of AMR's existing debt obligations. As
such, as of June 30, 2001, American will unconditionally guarantee
through the life of the related obligations approximately $700
million of unsecured debt and approximately $700 million of
secured debt. The impact of these unconditional guarantees is not
included in the above computation.
-14-
