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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 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) 963-1236
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 periods that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No .
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 May 8, 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 March
31, 1997 and 1996
Condensed Consolidated Balance Sheet -- March 31, 1997 and December
31, 1996
Condensed Consolidated Statement of Cash Flows -- Three months
ended March 31, 1997 and 1996
Notes to Condensed Consolidated Financial Statements -- March 31,
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 1: FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In millions)
Three Months Ended March
31,
1997 1996
Revenues
Passenger $3,390 $3,287
Cargo 162 160
Other 198 192
Total operating revenues 3,750 3,639
Expenses
Wages, salaries and benefits 1,270 1,234
Aircraft fuel 503 424
Commissions to agents 298 296
Depreciation and amortization 241 231
Other rentals and landing fees 190 183
Maintenance materials and repairs 162 134
Food service 160 154
Aircraft rentals 132 148
Other operating expenses 595 595
Total operating expenses 3,551 3,399
Operating Income 199 240
Other Income (Expense)
Interest income 7 6
Interest expense (74) (114)
Miscellaneous - net (4) (2)
(71) (110)
Income From Continuing Operations
Before Income Taxes 128 130
Income tax provision 54 55
Income From Continuing Operations 74 75
Income From Discontinued Operations
(less applicable income taxes) - 75
Net Earnings $ 74 $ 150
The accompanying notes are an integral part of these financial statements.
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AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
March 31, December
31,
1997 1996
(Unaudited) (Note 1)
Assets
Current Assets
Cash $ 70 $ 37
Short-term investments 1,179 1,312
Receivables, net 1,170 1,087
Inventories, net 541 559
Other current assets 564 549
Total current assets 3,524 3,544
Equipment and Property
Flight equipment, net 8,361 8,545
Other equipment and property, net 1,234 1,240
9,595 9,785
Equipment and Property Under Capital
Leases
Flight equipment, net 1,691 1,724
Other equipment and property, net 92 92
1,783 1,816
Route acquisition costs, net 967 974
Other assets, net 1,456 1,443
$ 17,325 $17,562
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 851 $ 914
Payables to affiliates 1,298 1,410
Accrued liabilities 1,494 1,738
Air traffic liability 2,074 1,889
Current maturities of long-term debt 22 22
Current obligations under capital leases 112 109
Total current liabilities 5,851 6,082
Long-term debt, less current maturities 976 983
Long-term debt due to Parent 68 118
Obligations under capital leases, less
current obligations 1,437 1,520
Deferred income taxes 696 680
Other liabilities, deferred gains, deferred
credits and postretirement benefits 3,695 3,651
Stockholder's Equity
Common stock - -
Additional paid-in capital 1,717 1,717
Retained earnings 2,885 2,811
4,602 4,528
$ 17,325 $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)
Three Months Ended
March 31,
1997 1996
Net Cash Provided by Operating Activities $ 125 $ 296
Cash Flow from Investing Activities:
Capital expenditures (79) (94)
Net decrease in short-term investments 133 25
Proceeds from sale of equipment and
property 89 73
Net cash provided by investing activities 143 4
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (73) (207)
Funds transferred to affiliates, net (162) (132)
Net cash used for financing activities (235) (339)
Net increase (decrease) in cash 33 (39)
Cash at beginning of period 37 70
Cash at end of period $ 70 $ 31
Cash Payments For:
Interest $ 96 $ 114
Income taxes 102 133
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 March
31, 1997 and December 31, 1996, was $5.2 billion and $5.1 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at March 31, 1997 and December 31, 1996, was
$825 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 currently 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 three months ended
March 31, 1996. The amounts shown are net of income taxes of $45
million for the three months ended March 31, 1996. Revenues from
the operations of the Information Services Group were $386 million
for the three months ended March 31, 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 May 7, 1997, American confirmed the structure of its aircraft
acquisition arrangement with Boeing announced in November 1996.
The arrangement includes firm orders for 75 Boeing 737s, 12 Boeing
757s and four Boeing 767-300ERs, with deliveries commencing in 1998
and continuing through 2004. The arrangement also contemplates the
purchase of Boeing 777 aircraft, although the Company has not yet
decided which of the 777 variants it will order. In addition to
the firm order, American has obtained "purchase rights" for
additional aircraft. Subject to the availability of delivery
positions, some of which are guaranteed, American will have the
right to acquire, at specified prices, new standard-body aircraft
with as little as 15 months prior notice; wide-bodied acquisitions
will require 18 months notice. Excluding the acquisition of the
Boeing 777 aircraft, payments for the new firm-order aircraft will
approximate $550 million in 1997, $800 million in 1998, $900
million in 1999, and $1.7 billion in 2000 and thereafter.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
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 three months ended March 31,
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
three months of 1997 of $74 million. This compares to income from
continuing operations of $75 million for the same period last year.
American's operating income was $199 million for the first three
months of 1997 compared to $240 million for the first three months of
1996.
American's passenger revenues increased by 3.1 percent, $103 million,
during the first three months of 1997 versus the same period last
year. American's yield (the average amount one passenger pays to fly
one mile) of 13.40 cents increased by 0.4 percent compared to the same
period in 1996. Domestic yields increased 0.4 percent from first
quarter 1996, while international yields were flat.
American's traffic or revenue passenger miles (RPMs) increased 2.7
percent to 25.3 billion miles for the quarter ended March 31, 1997.
American's capacity or available seat miles (ASMs) of 37.5 billion
miles for the first quarter of 1997 were comparable to the same
period in 1996. American's domestic traffic increased 2.9 percent on
capacity increases of 0.5 percent and international traffic grew 2.3
percent on capacity decreases of 1.5 percent. The increase in
international traffic was driven by a 9.3 percent increase in traffic
to Latin America on capacity growth of 2.0 percent, partially offset
by a 3.7 percent decrease in traffic to Europe on a capacity decrease
of 4.8 percent.
American's operating expenses increased 4.5 percent, $152 million.
American's Jet Operations cost per ASM increased by 4.8 percent to
9.40 cents. Wages, salaries and benefits expense increased $36
million, $20 million of which was a charge associated with the 5.75
million AMR stock options granted to American's pilots at $10 below
market value. Aircraft fuel expense increased 18.6 percent, $79
million, due to a 16.9 percent increase in American's average price
per gallon including tax. Maintenance materials and repairs expense
increased 20.9 percent, $28 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 10.8 percent, $16
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 35.5 percent or $39 million.
Interest expense decreased $40 million due primarily to the decline in
the balance of American's intercompany subordinated note with AMR and
the retirement of debt prior to scheduled maturity.
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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 be
excluded from the "fare" upon which the 25 percent penalty is
assessed. The case has not been certified as a class action. Summary
judgment was granted in favor of American but subsequently reversed
and vacated by the Illinois Appellate Court. American believes the
matter is without merit and is vigorously defending the lawsuit.
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. Although the complaint
originally involved numerous claims, after a January 18, 1995
preemption ruling by the U.S. Supreme Court, only the plaintiffs'
breach of contract claim remains. Currently, the plaintiffs allege
that in May 1988, American implemented changes that 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 and that these changes breached
American's contracts with AAdvantage members. The case has not been
certified as a class action. Although the case has been pending for
numerous years, it still is in a preliminary stage. American believes
the matter is without merit and is vigorously defending it.
Plaintiffs seek money damages for the alleged breach and attorneys'
fees.
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.
On February 1, 1995, a class action lawsuit entitled Gutterman vs.
American Airlines, Inc., was filed in the Circuit Court of Cook
County, Illinois. The Gutterman plaintiffs claim that this increase
in mileage level violated the terms and conditions of the agreement
between American and AAdvantage members. On February 9, 1995, a
virtually identical class action lawsuit entitled Benway vs. American
Airlines, Inc., was filed in District Court, Dallas County, Texas.
After limited discovery and prior to class certification, a summary
judgment dismissing the Benway case was entered by the Dallas County
court in July 1995. Although American's motion to dismiss the
Gutterman lawsuit was denied, American's motion for summary judgment
is still pending. No class has been certified in the Gutterman
lawsuit and to date only very limited discovery has been undertaken.
American believes the Gutterman complaint is without merit and is
vigorously defending the lawsuit.
On February 10, 1995, American capped travel agency commissions for
one-way and round-trip domestic tickets at $25 and $50, respectively.
Immediately thereafter, numerous travel agencies, and two travel
agency trade association groups, filed class action lawsuits against
American and other major air carriers (Continental, Delta, Northwest,
United, USAir and TWA) that had independently imposed similar limits
on travel agency commissions. The suits were transferred to the
United States District Court for the District of Minnesota, and
consolidated as a multi-district litigation captioned In Re: Airline
Travel Agency Commission Antitrust Litigation. On September 3, 1996,
American reached a tentative settlement with plaintiffs whereby
American agreed, inter alia, to pay $21.3 million in exchange for a
release from all claims. The court entered a final judgment approving
the settlement on February 7, 1997.
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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.
On January 21, 1997, American filed a report on Form 8-K relative to
the Company's negotiations with the Allied Pilots Association.
On February 6, 1997, American filed a report on Form 8-K relative to
its drawing under its credit facility agreement and negotiation of an
additional credit facility agreement.
On March 3, 1997, American filed a report on Form 8-K relative to the
Company's negotiations with the Allied Pilots Association.
On April 17, 1997, American filed a report on Form 8-K relative to
the Company's negotiations with the Allied Pilots Association.
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN AIRLINES, INC.
Date: May 12, 1997 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President - Finance and Planning
and Chief Financial Officer
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