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 September 30, 1997.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to
.
Commission file number 1-2691.
American Airlines, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-1502798
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, (817) 963-1234
including area code
Not Applicable
(Former name, former address and former fiscal year , if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter 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 November 14,
1997
The registrant meets the conditions set forth in, and is filing
this form with the reduced disclosure format prescribed by,
General Instructions H(1)(a) and H(1)(b) of Form 10-Q.
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INDEX
AMERICAN AIRLINES, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations -- Three months ended
September 30, 1997 and 1996; Nine months ended September 30, 1997
and 1996
Condensed Consolidated Balance Sheet -- September 30, 1997 and
December 31, 1996
Condensed Consolidated Statement of Cash Flows -- Nine months ended
September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements -- September
30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In millions)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues
Passenger $3,713 $3,533 $10,744 $10,330
Cargo 167 163 501 494
Other 227 204 641 600
Total operating revenues 4,107 3,900 11,886 11,424
Expenses
Wages, salaries and
benefits 1,314 1,207 3,865 3,683
Aircraft fuel 452 476 1,411 1,354
Commissions to agents 314 306 924 905
Depreciation and
amortization 237 236 716 691
Other rentals and
landing fees 202 200 592 574
Maintenance materials
and repairs 193 142 540 412
Food service 175 176 506 502
Aircraft rentals 133 133 398 429
Other operating expenses 618 580 1,822 1,743
Total operating expenses 3,638 3,456 10,774 10,293
Operating Income 469 444 1,112 1,131
Other Income (Expense)
Interest income 35 1 69 3
Interest expense (46) (49) (144) (154)
Related party interest-net (20) (28) (64) (130)
Miscellaneous - net (4) (21) (15) (21)
(35) (97) (154) (302)
Income From Continuing
Operations Before
Income Taxes 434 347 958 829
Income tax provision 168 139 378 333
Income From Continuing
Operations 266 208 580 496
Income From Discontinued
Operations (less applicable
income taxes) - - - 136
Net Earnings $ 266 $ 208 $ 580 $ 632
The accompanying notes are an integral part of these financial statements.
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AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited) (In millions)
September 30, December 31,
1997 1996
(Note 1)
Assets
Current Assets
Cash $ 13 $ 37
Short-term investments 2,321 1,312
Receivables, net 1,223 1,087
Inventories, net 552 559
Other current assets 514 549
Total current assets 4,623 3,544
Equipment and Property
Flight equipment, net 8,266 8,545
Other equipment and property, net 1,203 1,240
9,469 9,785
Equipment and Property Under Capital Leases
Flight equipment, net 1,626 1,724
Other equipment and property, net 92 92
1,718 1,816
Route acquisition costs, net 952 974
Other assets, net 1,436 1,443
$ 18,198 $ 17,562
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 1,017 $ 914
Payables to affiliates 1,002 1,410
Accrued liabilities 1,807 1,738
Air traffic liability 2,295 1,889
Current maturities of long-term debt 20 22
Current obligations under capital leases 111 109
Total current liabilities 6,252 6,082
Long-term debt, less current maturities 941 983
Long-term debt due to Parent - 118
Obligations under capital leases,
less current obligations 1,415 1,520
Deferred income taxes 752 680
Other liabilities, deferred gains, deferred
credits and postretirement benefits 3,728 3,651
Stockholder's Equity
Common stock - -
Additional paid-in capital 1,717 1,717
Retained earnings 3,393 2,811
5,110 4,528
$ 18,198 $ 17,562
The accompanying notes are an integral part of these financial
statements.
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AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Nine Months Ended
September 30,
1997 1996
Net Cash Provided by Operating Activities $1,917 $1,595
Cash Flow from Investing Activities:
Capital expenditures (410) (333)
Net increase in short-term investments (1,009) (270)
Proceeds from sale of equipment and property 173 232
Net cash used for investing activities (1,246) (371)
Cash Flow from Financing Activities:
Payments on long-term debt and
capital lease obligations (139) (1,116)
Funds transferred to affiliates, net (556) (161)
Net cash used for financing activities (695) (1,277)
Net decrease in cash (24) (53)
Cash at beginning of period 37 70
Cash at end of period $ 13 $ 17
Cash Payments For:
Interest $ 239 $ 298
Income taxes 226 282
The accompanying notes are an integral part of these financial
statements.
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AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, these
financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial
position, results of operations and cash flows for the periods
indicated. 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, 1996 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, 1996.
2.Accumulated depreciation of owned equipment and property at
September 30, 1997 and December 31, 1996, was $5.6 billion and $5.1
billion, respectively. Accumulated amortization of equipment and
property under capital leases at September 30, 1997 and December
31, 1996, was $877 million and $792 million, respectively.
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, 1996, the Miami International Airport Authority
is currently remediating various environmental conditions at Miami
International Airport (Airport) and funding the remediation costs
through landing fee revenues. Future costs of the remediation
effort may be borne by carriers operating at the Airport, including
American, through increased landing fees. The ultimate resolution
of this matter is not expected to have a significant impact on the
financial position or liquidity of American.
4.On July 2, 1996, AMR Corporation (AMR), the parent company of
American, completed the reorganization of its information
technology businesses known as The SABRE Group into a separate,
wholly-owned subsidiary of AMR known as The SABRE Group Holdings,
Inc. and its direct and indirect subsidiaries (the
"Reorganization"). Prior to the Reorganization, most of The SABRE
Group's business units were divisions of American. As part of the
Reorganization, all of the businesses of The SABRE Group, including
American's SABRE Travel Information Network, SABRE Computer
Services, SABRE Development Services, and SABRE Interactive
divisions (collectively, the Information Services Group), and
certain buildings, equipment, and American's leasehold interest in
certain other buildings used by The SABRE Group were combined in
subsidiaries of American, which were then dividended to AMR.
The results of operations of the Information Services Group have
been reflected in the consolidated statement of operations as
income from discontinued operations for the nine months ended
September 30, 1996. The amounts shown are net of income taxes of
$82 million for the nine months ended September 30, 1996. Revenues
from the operations of the Information Services Group were $754
million for the nine months ended September 30, 1996.
5.On May 5, 1997, the members of the Allied Pilots Association
ratified a new labor agreement that was reached with American in
March 1997. The new contract becomes amendable August 31, 2001.
Among other provisions, the agreement granted pilots options to buy
5.75 million shares of AMR stock at $83.375, $10 less than the
average fair market value of the stock on the date of grant, May 5,
1997. The options are immediately exercisable.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.On October 31, 1997, American signed a previously announced
aircraft acquisition agreement with Boeing. The contract includes
firm orders for 75 Boeing 737-800s, 12 Boeing 757-200s, 11 Boeing
777-200IGWs and eight Boeing 767-300ERs, with deliveries commencing
in 1998 and continuing through 2004. In addition to the firm
orders, American obtained "purchase rights" for additional
aircraft. Subject to the availability of delivery positions, some
of which are guaranteed, American has the right to acquire, at
specified prices, new standard and wide-bodied aircraft with prior
notice ranging from 15 to 18 months.
Payments for the firm-order aircraft noted above will approximate
$720 million in 1997, $1.2 billion in 1998, $1.9 billion in 1999,
and $1.8 billion in 2000 and thereafter.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
For the Nine Months Ended September 30, 1997 and 1996
As discussed in Note 4, as of July 2, 1996, AMR completed the
reorganization of The SABRE Group (the "Reorganization"). Thus, the
results of operations of American's Information Services Group have
been reflected in the consolidated statement of operations as income
from discontinued operations for the nine months ended September 30,
1996. Following the Reorganization, American operates in only one
business segment, and, as such, the discussion below relates only to
the operations of what was formerly American's Airline Group.
American recorded income from continuing operations for the first
nine months of 1997 of $580 million. This compares to income from
continuing operations of $496 million for the same period last year.
American's operating income of $1.1 billion for the first nine months
of 1997 was comparable to the same period in 1996.
American's passenger revenues increased by 4.0 percent, $414 million.
American's yield (the average amount one passenger pays to fly one
mile) of 13.25 cents increased by 1.5 percent compared to the same
period in 1996. Domestic yields increased 0.2 percent from the first
nine months of 1996. International yields increased 4.2 percent,
reflecting a 4.7 percent increase in Latin America and a 3.4 percent
increase in Europe.
American's traffic or revenue passenger miles (RPMs) increased 2.5
percent to 81.1 billion miles for the nine months ended September 30,
1997. American's capacity or available seat miles (ASMs) increased
0.4 percent to 115.6 billion miles in the first nine months of 1997.
American's domestic traffic increased 2.4 percent on capacity
increases of 0.7 percent and international traffic grew 2.9 percent
on capacity decreases of 0.2 percent. The overall increase in
international traffic was driven by a 7.1 percent increase in traffic
to Latin America on capacity growth of 3.8 percent, partially offset
by a 4.9 percent decrease in Pacific traffic on a capacity decrease
of 3.8 percent.
American's operating expenses increased 4.7 percent, $481 million.
American's Jet Operations cost per ASM increased by 4.4 percent to
9.23 cents. Wages, salaries and benefits increased 4.9 percent, $182
million, primarily due 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.
Aircraft fuel expense increased 4.2 percent, $57 million, due
primarily to a 2.9 percent increase in American's average price per
gallon, including taxes, and a 1.2 percent increase in American's
fuel consumption. Maintenance materials and repairs expense
increased 31.1 percent, $128 million, due to additional aircraft
check lines added at American's maintenance bases as a result of the
maturing of its fleet. Aircraft rentals decreased 7.2 percent, $31
million, as a result of American's decision to prepay the cancelable
operating leases it had on 12 of its Boeing 767-300 aircraft during
June and July 1996. Following the prepayments, these aircraft have
been accounted for as capital leases and the related costs included
in amortization expense.
Other Income (Expense) decreased 49.0 percent, $148 million,
primarily as a result of an increase in interest income and a
decrease in related party interest, primarily due to the
reorganization of The SABRE Group and the repayment of debt due to
AMR.
AIRLINE TRANSPORTATION TAXES
The Federal airline passenger excise tax, which was reimposed in the
first quarter of 1997, expired on September 30, 1997. A replacement
tax mechanism took effect on October 1, 1997. Over a five year
period on a sliding scale, the airline ticket tax will be reduced
from ten percent to 7.5 percent and a $3 per passenger segment fee
will be phased in. Additionally, the fee for international arrivals
and departures was increased from $6 per departure to $12 for each
arrival and departure and a 7.5 percent tax was added on the purchase
of frequent flyer miles. The ultimate impact of the new taxes on
American cannot be determined at this time.
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TRAVEL AGENCY COMMISSION
During the third quarter of 1997, the Company implemented changes to
its travel agency commission payment plan, which lowered the base
commission paid to travel agents from 10% to 8% on all tickets
purchased in the U.S. and Canada for both domestic and international
travel. The ultimate impact of the new travel agency commission
structure on American cannot be determined at this time.
YEAR 2000 COMPLIANCE
The Company has implemented a Year 2000 compliance program designed
to ensure that the Company's computer systems and applications will
function properly beyond 1999. Such program includes both systems
and applications operated by the Company's businesses. The Company
believes that it has allocated adequate resources for this purpose
and expects its Year 2000 date conversion program to be completed on
a timely basis. However, there can be no assurance that the systems
of other parties upon which the Company's businesses also rely will
be converted on a timely basis. The Company's business, financial
condition, or results of operations could be materially adversely
affected by the failure of its systems and applications or those
operated by other parties to properly operate or manage dates beyond
1999.
The Company expects to incur significant internal staff costs, as
well as consulting and other expenses, related to infrastructure and
facilities enhancements necessary to prepare its system for the Year
2000. However, a portion of these costs will not be incremental costs
to the Company, but rather will represent the redeployment of existing
information technology resources. The Company cannot presently determine
the amount of such costs that will be incremental. Maintenance or
modification costs associated with making existing computer systems
Year 2000 compliant will be expensed as incurred.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In January 1985, American announced a new fare category, the "Ultimate
SuperSaver," a discount, advance purchase fare that carried a 25
percent penalty upon cancellation. On December 30, 1985, a class
action lawsuit was filed in Circuit Court, Cook County, Illinois
entitled Johnson vs. American Airlines, Inc. The Johnson plaintiffs
allege that the 10 percent federal excise transportation tax should
have been excluded from the "fare" upon which the 25 percent penalty
was assessed. Summary judgment was granted in favor of American but
subsequently reversed and vacated by the Illinois Appellate Court. In
August 1997, the Court denied the plaintiff's motion for class
certification. American is vigorously defending the lawsuit.
In connection with its frequent flyer program, American was sued in
two cases (Wolens et al v. American Airlines, Inc., No. 88 CH 7554,
and Tucker v. American Airlines, Inc., No. 89CH199) seeking class
action certification that were consolidated and are currently pending
in the Circuit Court of Cook County, Illinois. The litigation arises
from certain changes made to American's AAdvantage frequent flyer
program in May 1988 which limited the number of seats available to
participants traveling on certain awards and established blackout
dates during which no AAdvantage seats would be available for certain
awards. In the consolidated action, the plaintiffs allege that these
changes breached American's contract with AAdvantage members, seek
money damages for the alleged breach and attorney's fees and seek to
represent all persons who joined the AAdvantage program before May
1988 and accrued mileage credits before the seat limitations were
introduced. The complaint originally asserted several state law
claims, however only the plaintiffs' breach of contract claim remains
after the U. S. Supreme Court ruled that federal law preempted the
other claims. Although the case has been pending for numerous years,
it still is in its preliminary stages. The court has not ruled as to
whether the case should be certified as a class action. American is
vigorously defending the lawsuit.
Another frequent flyer case, Gutterman et al. v. American Airlines,
Inc., is also pending in the Circuit Court of Cook County, Illinois,
arising from an announced increase in AAdvantage mileage credits
required for free travel. In December 1993, American announced that
the number of miles required to claim a certain travel award under
American's AAdvantage frequent flyer program would be increased
effective February 1, 1995, giving rise to the Gutterman litigation
filed on that same date. The Gutterman plaintiffs claim that the
announced increase in award mileage level violated the terms and
conditions of the agreement between American and AAdvantage members.
The plaintiffs seek class certification of this action, although the
court has yet to rule on the issue. To date, only limited discovery
has been undertaken. American is vigorously defending the lawsuit.
On October 22, 1997, federal agents executed a search warrant at
American Airlines Miami facilities. American has learned that a federal
grand jury is investigating whether American handled hazardous materials
and processed courier shipments, cargo and excess baggage in accordance
with applicable laws and regulations. In connection with this
investigation, American has been served with a subpoena calling for the
production of documents relating to the handling of courier shipments,
cargo, excess baggage and hazardous materials. American is in the process
of producing documents responsive to the subpoena and intends to
cooperate fully with the government's investigation.
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PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
27 Financial Data Schedule.
12
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:November 14,1997 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President - Finance and
Planning and Chief Financial Officer
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1,000,000
9-MOS
DEC-31-1997
SEP-30-1997
13
2321
1,230
7
552
4,623
17,638
6,451
18,198
6,252
2,356
0
0
0
5,110
18,198
0
11,886
0
10,774
0
0
144
958
378
580
0
0
0
580
0
0
