<Page> 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, 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 1-8400.
AMR Corporation
(Exact name of registrant as specified in its charter)
Delaware 75-1825172
(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 - 154,481,598 as of October 19, 2001.
<Page> 2
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and nine months
ended September 30, 2001 and 2000
Condensed Consolidated Balance Sheets - September 30, 2001 and
December 31, 2000
Condensed Consolidated Statements of Cash Flows -- Nine months
ended September 30, 2001 and 2000
Notes to Condensed Consolidated Financial Statements - September
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
<Page> 3
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
<s> <c> <c> <c> <c>
Revenues
Passenger - American Airlines $3,440 $4,390 $11,349 $12,355
- TWA LLC 591 - 1,262 -
- American Eagle 338 390 1,101 1,096
Cargo 158 183 524 530
Other revenues 289 293 923 863
Total operating revenues 4,816 5,256 15,159 14,844
Expenses
Wages, salaries and benefits 2,133 1,721 6,005 5,012
Aircraft fuel 776 648 2,325 1,768
Depreciation and amortization 368 307 1,033 889
Maintenance, materials and
repairs 332 278 910 821
Other rentals and landing fees 323 250 900 743
Commissions to agents 207 266 691 796
Food service 209 204 611 587
Aircraft rentals 230 151 604 455
Other operating expenses 973 859 2,894 2,472
Special charges 632 - 1,317 -
U.S. Government grant (809) - (809) -
Total operating expenses 5,374 4,684 16,481 13,543
Operating Income (Loss) (558) 572 (1,322) 1,301
Other Income (Expense)
Interest income 16 42 80 108
Interest expense (122) (119) (373) (353)
Interest capitalized 37 36 116 110
Miscellaneous - net (9) (6) 13 38
(78) (47) (164) (97)
Income (Loss) From Continuing
Operations Before Income
Taxes and Extraordinary Loss (636) 525 (1,486) 1,204
Income tax provision (benefit) (222) 203 (522) 472
Income (Loss) From Continuing
Operations Before
Extraordinary Loss (414) 322 (964) 732
Income From Discontinued
Operations, net of
applicable income taxes and
minority interest - - - 43
Income (Loss) Before
Extraordinary Loss (414) 322 (964) 775
Extraordinary Loss, net of
applicable income taxes - (9) - (9)
Net Earnings (Loss) $(414) $ 313 $(964) $ 766
</Table>
Continued on next page.
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AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Unaudited) (In millions, except per share amounts)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
<s> <c> <c> <c> <c>
Earnings (Loss) Applicable
to Common Shares $(414) $ 313 $(964) $ 766
Earnings (Loss) Per Share
Basic
Income (Loss) from
Continuing Operations $(2.68) $ 2.14 $(6.26) $ 4.89
Discontinued Operations - - - 0.30
Extraordinary Loss - (0.06) - (0.06)
Net Earnings (Loss) $(2.68) $ 2.08 $(6.26) $ 5.13
Diluted
Income (Loss) from
Continuing Operations $(2.68) $ 1.96 $(6.26) $ 4.55
Discontinued Operations - - - 0.27
Extraordinary Loss - (0.05) - (0.05)
Net Earnings (Loss) $(2.68) $ 1.91 $(6.26) $ 4.77
Number of Shares Used in
Computation
Basic 154 150 154 149
Diluted 154 164 154 161
</Table>
The accompanying notes are an integral part of these financial
statements.
-2-
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AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
<Table>
<Caption>
September 30, December 31,
2001 2000
Assets <c> <c>
<s>
Current Assets
Cash $ 69 $ 89
Short-term investments 2,271 2,144
Receivables, net 1,829 1,303
Inventories, net 871 757
Deferred income taxes 693 695
Other current assets 348 191
Total current assets 6,081 5,179
Equipment and Property
Flight equipment, net 14,601 13,721
Other equipment and property, net 1,967 1,671
Purchase deposits for flight equipment 1,537 1,700
18,105 17,092
Equipment and Property Under Capital Leases
Flight equipment, net 1,653 1,448
Other equipment and property, net 96 96
1,749 1,544
Route acquisition costs and airport
operating and gate lease rights, net 1,350 1,143
Other assets, net 4,555 1,255
$ 31,840 $ 26,213
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,613 $ 1,267
Accrued liabilities 2,619 2,231
Air traffic liability 3,095 2,696
Current maturities of long-term debt 509 569
Current obligations under capital leases 267 227
Total current liabilities 8,103 6,990
Long-term debt, less current maturities 6,491 4,151
Obligations under capital leases, less
current obligations 1,607 1,323
Postretirement benefits 2,417 1,706
Deferred income taxes 2,168 2,385
Other liabilities, deferred gains
and deferred credits 4,823 2,482
Stockholders' Equity
Common stock 182 182
Additional paid-in capital 2,810 2,911
Treasury stock (1,719) (1,865)
Accumulated other comprehensive income (28) (2)
Retained earnings 4,986 5,950
6,231 7,176
$ 31,840 $ 26,213
</Table>
The accompanying notes are an integral part of these financial
statements.
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AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
<Table>
<Caption>
Nine Months Ended
September 30,
2001 2000
<s> <c> <c>
Net Cash Provided by Operating Activities $1,306 $ 2,732
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (3,059) (2,792)
Acquisition of Trans World Airlines, Inc. (742) -
Net increase in short-term investments (127) (457)
Proceeds from:
Sale of equipment and property 326 239
Sale of other investments 26 94
Dividend from Sabre Holdings Corporation - 559
Other investments and miscellaneous 18 (41)
Net cash used for investing activities (3,558) (2,398)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (716) (628)
Proceeds from:
Issuance of long-term debt 2,770 351
Sale-leaseback transactions 141 -
Exercise of stock options 37 29
Net cash provided by (used for)
financing activities 2,232 (248)
Net increase (decrease) in cash (20) 86
Cash at beginning of period 89 85
Cash at end of period $ 69 $ 171
Activities Not Affecting Cash:
Distribution of Sabre Holdings Corporation
shares to AMR shareholders $ - $ 581
</Table>
The accompanying notes are an integral part of these financial
statements.
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AMR CORPORATION
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 known adjustments,
consisting of normal recurring accruals, the impact of the September
11, 2001 terrorist attacks referred to below, and asset impairment and
other charges necessary to present fairly the financial position,
results of operations and cash flows for the periods indicated. The
results of operations and cash flows for Sabre Holdings Corporation
(Sabre) have been reflected as discontinued operations in the
consolidated financial statements for the nine months ended September
30, 2000. Results of operations for the periods presented herein are
not indicative of results of operations for the entire year (see
discussion of the impact of the September 11, 2001 terrorist attacks
in footnote 2 below). For further information, refer to the
consolidated financial statements and footnotes thereto included in
the AMR Corporation (AMR 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. In this report, a
reference to "American" or "American Airlines" is to American
Airlines, Inc. (a wholly-owned subsidiary of AMR).
Among the effects experienced by the Company from the September 11,
2001 terrorist attacks have been significant flight disruption
costs caused by the Federal Aviation Administration's (FAA) imposed
grounding of the U.S. airline industry's fleet, significantly
increased security and other costs, significantly higher ticket
refunds, significantly reduced load factors, and significantly
reduced yields. Further terrorist attacks using commercial aircraft
in flight could result in another grounding of the Company's fleet,
and would likely result in additional reductions in load factor and
yields, along with increased ticket refund, security and other
costs. In addition, terrorist attacks not involving commercial
aircraft, or the general increase in hostilities relating to
reprisals against terrorist organizations or otherwise, could
result in decreased load factors and yields for airlines, including
the Company, and increased costs.
The Company will continue to evaluate whether any additional
provisions and/or revisions to the charges recorded as of September
30, 2001 (see footnote 2 below) are required during the fourth
quarter of 2001. However, the impact of the September 11, 2001
terrorist attacks on the Company's financial condition and the
sufficiency of its financial resources to absorb that impact will
depend on a number of factors. For a discussion of these factors,
see Management Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources.
2.On September 11, 2001, two American Airlines aircraft were
hijacked and destroyed in terrorist attacks on The World Trade Center
in New York City and the Pentagon in northern Virginia. On the same
day, two United Air Lines aircraft were also hijacked and used in
terrorist attacks. In addition to the loss of all passengers and crew
on board the aircraft, these attacks resulted in untold deaths and
injuries to persons on the ground and massive property damage. In
response to those terrorist attacks, the FAA issued a federal ground
stop order on September 11, 2001, prohibiting all flights to, from,
and within the United States. Airports did not reopen until September
13, 2001 (except for Washington Reagan National Airport, which was
partially reopened on October 4, 2001). The Company was able to
operate only a portion of its scheduled flights for several days
thereafter. When flights were permitted to resume, passenger traffic
and yields on the Company's flights were significantly lower than
prior to the attacks. As a result, the Company announced that it
would reduce its operating schedule to approximately 80 percent of the
schedule it flew prior to September 11, 2001. In addition, the
Company also announced that, as a result of its schedule reduction and
the sharp fall off in passenger traffic, it would eliminate at least
20,000 jobs. The Company's future schedule will vary as the Company
reacts to continuing changes in demand and yields, as well as normal
factors such as seasonality and fleet composition.
-5-
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
On September 22, 2001, President Bush signed into law the Air
Transportation Safety and System Stabilization Act (the Act), which
for all U.S. airlines and air cargo carriers (collectively, air
carriers), provides for, among other things: (i) $5 billion in
compensation for direct losses (including lost revenues) incurred
as a result of the federal ground stop order and for incremental
losses incurred through December 31, 2001 as a direct result of the
attacks; (ii) subject to certain conditions, the availability of up
to $10 billion in federal government guarantees of certain loans
made to air carriers for which credit is not reasonably available
as determined by a newly established Air Transportation
Stabilization Board; (iii) the authority of the Secretary of
Transportation to reimburse air carriers (which authority expires
180 days after the enactment of the Act) for the increase in the
cost of insurance, for coverage ending before October 1, 2002, over
the premium in effect for the period September 4, 2001 to September
10, 2001; (iv) at the discretion of the Secretary of
Transportation, a $100 million limit on the liability of any air
carrier to third parties with respect to acts of terrorism
committed on or to such air carrier during the 180-day period
following the enactment of the Act; (v) the extension of the due
date for the payment by air carriers of certain excise taxes; and
(vi) compensation to individual claimants who were physically
injured or killed as a result of the terrorist attacks of September
11, 2001. In addition, the Act provides that, notwithstanding any
other provision of law, liability for all claims, whether
compensatory or punitive, arising from the terrorist-related events
of September 11, 2001 against any air carrier shall not exceed the
liability coverage maintained by the air carrier.
The Company estimates that its liability from claims arising from
the events of September 11, 2001 is approximately $2.3 billion,
after considering the liability protections provided for by the
Act. The Company expects to recover the $2.3 billion from its
insurance carriers as claims are settled. The insurance receivable
and liability are classified as Other assets, net and Other
liabilities, deferred gains and deferred credits on the
accompanying condensed consolidated balance sheets, respectively.
The Company may revise these estimates as additional information
becomes available concerning the expected claims.
As a result of the September 11, 2001 events, aviation insurers
have significantly reduced the maximum amount of insurance coverage
available to commercial air carriers for liability to persons other
than employees or passengers for claims resulting from acts of
terrorism, war or similar events (war-risk coverage). At the same
time, they significantly increased the premiums for such coverage
as well as for aviation insurance in general. As detailed above,
the Act mitigated the immediate effects of changes in the aviation
insurance market. In addition, and pursuant to the Act, the Government
has issued war risk coverage to U.S. air carriers for renewable
30-day periods.
Under the Act, each air carrier is entitled to receive the lesser
of (i) its direct and incremental losses for the period September
11, 2001 to December 31, 2001 or (ii) its available seat mile
allocation of the $5 billion compensation available under the Act.
AMR has received a total of $452 million from the U.S. Government
under the Act. The Company expects to receive additional payments
in the fourth quarter of 2001 aggregating approximately $452
million. As of September 30, 2001, the Company recognized
approximately $809 million as compensation under the Act, which is
included in U.S. Government grant on the accompanying consolidated
statements of operations, and is based upon direct and incremental
losses for the period September 11, 2001 through September 30, 2001,
including special charges and lost revenue.
Special charges for the three months ended September 30, 2001
includes the following (in millions):
Provision for aircraft impairments and groundings $ 496
Facility exit costs 61
Employee charges 55
Other 20
$ 632
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Provision for aircraft impairments and groundings
Following the events of September 11, 2001 and decisions by other
carriers to ground their Fokker 100 fleets, the Company determined
that the estimated fair market value of its Fokker 100, Saab 340
and ATR 42 aircraft had further declined in value, on an other than
temporary basis, as compared to the estimated fair market values
used to write-down the carrying value of these aircraft during the
second quarter of 2001 (see discussion below). Therefore, during
the third quarter of 2001, the Company recorded an additional
charge of approximately $423 million reflecting the diminution in
the estimated fair market value of these aircraft and related
rotables.
Earlier this year, the Company determined that the estimated future
undiscounted cash flows expected to be generated by its Fokker 100,
Saab 340 and ATR 42 aircraft fleets 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 $685 million relating to the write-down of the
carrying value of 71 Fokker 100 aircraft, 74 Saab 340 aircraft and
20 ATR 42 aircraft and related rotables to their estimated fair
market values. Management estimated or determined the undiscounted
future cash flows utilizing models used by the Company in making
fleet and scheduling decisions. 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 the retirement dates and
changes in salvage values, depreciation and amortization expense
will decrease by approximately $55 million on an annualized basis.
The Company also announced it would accelerate the retirement of
its remaining 50 owned Boeing 727-200 aircraft (previously
scheduled to be retired by January 2003) to early 2002,
ground all McDonnell Douglas DC-9 (DC9) aircraft by the end
of October 2001, and immediately ground eight McDonnell Douglas MD-
80 (MD80) aircraft. In conjunction therewith, the Company recorded
a charge of approximately $73 million related primarily to future
lease commitments on the DC9 and MD80 operating leased aircraft
past the dates they will be removed from service, lease return and
storage costs, and the write-down of one owned MD80 aircraft to its
estimated fair market value. Cash outlays are estimated to be
approximately $64 million and will occur over the remaining lease
terms, which extend through 2010.
The Company will continue to evaluate its current operating
schedule to determine if additional revisions to its fleet plan are
warranted, which will be primarily dependent on passenger demand
and yield in the upcoming months. In addition, the events of
September 11, 2001 and the resulting significant decline in
passenger traffic and yields require the Company to assess its long-
lived assets for impairment, including aircraft fleets, route
acquisition costs, airport operating and gate lease rights, and
goodwill. However, the Company is currently not able to make a
reasonable estimate of future cash flows derived from these long-
lived assets for the purposes of assessing whether such assets are
impaired because of the lack of predictability of future traffic,
business mix and yields. The Company will perform impairment
reviews once this information becomes more predictable and future
operating cash flows therefore become reasonably estimable. This
may occur in the fourth quarter of 2001 or during 2002. The size
of any resulting charge is not presently known, but could be
significant.
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Facility exit costs
Also in response to the September 11, 2001 terrorist attacks, the
Company announced that it would discontinue service at Dallas Love
Field and discontinue or reduce service on several of its
international routes. In addition, the Company announced it would
close six Admiral's Clubs, five airport Platinum Service Centers
and approximately 105 off-airport Travel Centers in 37 cities, all
effective September 28, 2001. As a result of these announcements,
the Company recorded a $61 million charge related to the write-off
of leasehold improvements, fixed assets and future lease
commitments. Cash outlays are estimated to be approximately $19
million and will occur over the remaining lease terms, which extend
through 2017.
Employee charges
On September 19, 2001, the Company announced that it would be
forced to reduce its workforce by at least 20,000 jobs across all
work groups (pilots, flight attendants, mechanics, fleet service
clerks, agents, management and support staff personnel). The
reduction in workforce, which the Company expects to accomplish
through various measures, including leave of absences, job sharing,
elimination of open positions, furloughs in accordance with
collective bargaining agreements, and permanent layoffs, resulted
from the September 11, 2001 terrorist attacks and the Company's
subsequent reduction of its operating schedule by approximately 20
percent due to a sharp reduction in passenger traffic. The Company
recorded an employee charge of approximately $55 million for
termination benefits provided to the employees impacted. Cash
outlays for the employee charges are expected to occur
substantially during the remainder of 2001 and will approximate the
amount of the charge recorded.
3.Accumulated depreciation of owned equipment and property at
September 30, 2001 and December 31, 2000, was $8.9 billion and $8.3
billion, respectively. Accumulated amortization of equipment and
property under capital leases at September 30, 2001 and December 31,
2000, was $1.2 billion.
4.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 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, 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. 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.
5.As of September 30, 2001, the Company had commitments to acquire
the following aircraft: 49 Boeing 737-800s, 15 Boeing 767-300ERs, 15
Boeing 757-200s, 10 Boeing 777-200ERs, 131 Embraer regional jets and
25 Bombardier CRJ-700s. Future payments for all aircraft, including
the estimated amounts for price escalation, will approximate $600
million during the remainder of 2001, $1.2 billion in 2002, $800
million in 2003 and an aggregate of approximately $3.3 billion in 2004
and beyond. These cash flows reflect a tentative agreement the Company
has with Boeing to defer 29 of its 45 2002 deliveries to 2004 and
beyond. As the Company and Boeing are still negotiating the final
terms of the tentative agreement, the above aircraft commitment and
cash flow amounts could change.
-8-
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6.During the first nine months of 2001, American and AMR Eagle
entered into various debt agreements secured by aircraft having a
net book value of approximately $1.7 billion. Effective interest
rates on these agreements are fixed or variable (based on LIBOR
plus a spread), ranging up to approximately 7.4 percent, and mature
over various periods of time, ranging from 2013 to 2021. During the
nine months ended September 30, 2001, the Company had borrowed
approximately $1.7 billion under these agreements.
American has $1 billion in credit facility agreements that expire
December 15, 2005, subject to certain conditions. In September
2001, American borrowed approximately $819 million under the credit
facility agreements which bears interest at 3.94 percent.
During the third quarter of 2001, American entered into an advance
payment facility which expires in 2004. Interest is variable based
upon one month LIBOR plus a spread. As of September 30, 2001, the Company
had borrowed approximately $200 million under this advance payment
facility. These borrowings bear interest ranging from 3 to 4 percent.
In April 2001, the Board of Directors of American approved the
guarantee by American of AMR's existing debt obligations. As of
September 30, 2001, American unconditionally guaranteed through the
life of the related obligations approximately $695 million of
unsecured debt, approximately $700 million of secured debt and
approximately $1.6 billion of special facility revenue bonds issued
by municipalities.
Subsequent to September 30, 2001 and through October 24, 2001, the
Company had issued approximately $1.3 billion of enhanced
equipment trust certificates, with $740 million received at closing
and the remainder to be received as certain aircraft are delivered,
with interest rates ranging from 6.978 to 8.608 percent and
maturing in 2011. These borrowings are secured by aircraft.
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 nine-month periods ended September 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 $900
million, which is being amortized on a straight-line basis over 40
years, and brought the Company's total goodwill to approximately
$1.3 billion as of September 30, 2001. 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."
-9-
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The following table provides unaudited pro forma consolidated
results of operations, assuming the acquisition had occurred as of
January 1, 2000 (in millions, except per share amounts):
<Table>
<Caption>
Nine Months Ended
September 30,
2001 2000
<s> <c> <c>
Operating revenues $16,057 $17,689
Income (loss) from continuing operations (951) 809
Net earnings (loss) (951) 852
Earnings (loss) per share - diluted $ (6.17) $ 5.31
</Table>
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.
In addition, the Company acquired certain aircraft lease
obligations, primarily operating lease agreements, in connection
with the acquisition of TWA. The future minimum lease payments
required under these operating leases are as follows (in millions):
Year Ending December 31,
2002 $ 373
2003 271
2004 200
2005 174
2006 and subsequent 1,229
$2,247
-10-
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AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
8.The following table sets forth the computations of basic and
diluted earnings (loss) per share (in millions, except per share
data):
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
<s> <c> <c> <c> <c>
Numerator:
Income (loss) from
continuing operations
before extraordinary loss
- numerator for basic and
diluted earnings per share $(414) $ 322 $(964) $ 732
Denominator:
Denominator for basic
earnings (loss) per share
- weighted-average shares 154 150 154 149
Effect of dilutive securities:
Employee options and shares - 31 - 26
Assumed treasury shares
purchased - (17) - (14)
Dilutive potential shares - 14 - 12
Denominator for diluted
earnings (loss) per share
- adjusted weighted-
average shares 154 164 154 161
Basic earnings (loss) per
share from continuing
operations before
extraordinary loss $(2.68) $ 2.14 $(6.26) $ 4.89
Diluted earnings (loss) per
share from continuing
operations before
extraordinary loss $(2.68) $ 1.96 $ (6.26) $ 4.55
</Table>
For the three and nine months ended September 30, 2001,
approximately 12 million and 13 million dilutive potential shares,
respectively, were not added to the denominator because inclusion
of such shares would be antidilutive.
9.For the three and nine months ended September 30, 2001, the
Company recognized net gains of approximately $15 million and $52
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 $159 million and $391 million, respectively,
for the three and nine months ended September 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 September 30, 2001,
representing the amount the Company would receive to terminate the
agreements, totaled $93 million.
-11-
<Page> 14
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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 nine months ended September 30, 2001, comprehensive loss was
$511 million and $990 million, respectively. The difference between
net loss and comprehensive loss for the three and nine months ended
September 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. The difference between net income and comprehensive
income for the three and nine months ended September 30, 2000 was not
material.
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, which is included in Miscellaneous - net on
the consolidated statements of operations.
12.During the third quarter of 2000, AMR repurchased prior to
scheduled maturity approximately $167 million in face value of long-
term debt. Cash from operations provided the funding for the
repurchases. These transactions resulted in an extraordinary loss
of $14 million.
13.Effective after the close of business on March 15, 2000, AMR
distributed 0.722652 shares of Sabre Class A common stock for each
share of AMR stock owned by AMR's shareholders. The record date for
the dividend of Sabre stock was the close of business on March 1,
2000. In addition, on February 18, 2000, Sabre paid a special one-
time cash dividend of $675 million to shareholders of record of Sabre
common stock at the close of business on February 15, 2000. Based
upon its approximate 83 percent interest in Sabre, AMR received
approximately $559 million of this dividend. The dividend of AMR's
entire ownership interest in Sabre's common stock resulted in a
reduction to AMR's retained earnings in March of 2000 equal to the
carrying value of the Company's investment in Sabre on March 15, 2000,
which approximated $581 million.
The results of operations for Sabre have been reflected in the
consolidated statements of operations as discontinued operations.
Other summarized financial information of discontinued operations
for the nine months ended September 30, 2000 is as follows (in
millions):
Revenues $ 542
Minority interest 10
Income taxes 36
Net income 43
-12-
<Page> 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
For the Three Months Ended September 30, 2001 and 2000
Summary AMR's net loss for the three months ended September 30, 2001
was $414 million, or $2.68 loss per share, as compared to income
before extraordinary loss of $322 million, or $1.96 per share
diluted, for the same period in 2000. AMR's operating loss for the
third quarter of 2001 was $558 million, compared to operating income
of $572 million for the third quarter of 2000. On September 11,
2001, two of American's aircraft were hijacked and destroyed in
terrorist attacks on The World Trade Center in New York City and the
Pentagon in northern Virginia. On the same day, two United Air Lines
aircraft were also hijacked and used in terrorist attacks. In
response to the terrorist attacks, the Federal Aviation
Administration (FAA) issued a federal ground stop order on September
11, 2001, prohibiting all flights to, from, and within the United
States. Airports did not reopen until September 13, 2001 (except for
Washington Reagan National Airport, which was partially reopened on
October 4, 2001). The Company was able to operate only a portion of
its scheduled flights for several days thereafter. When flights were
permitted to resume, passenger traffic and yields on the Company's
flights were significantly lower than prior to the attacks. As a
result, the Company announced that it would reduce its operating
schedule to approximately 80 percent of the schedule it flew prior to
September 11, 2001. For additional information related to the
September 11, 2001 events, see footnote 2 to the condensed
consolidated financial statements. In addition, 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 have been included in the
accompanying consolidated financial statements for the three-month
period ended September 30, 2001. AMR's third quarter 2000 results
from continuing operations include the effect of a labor disruption
at one of the Company's major competitors which positively impacted
the Company's net earnings by an estimated $0.22 to $0.28 per share
diluted.
The Company's revenues decreased $440 million, or 8.4 percent, in the
third quarter of 2001 versus the same period last year. Excluding
TWA's revenues for the third quarter of 2001, the Company's revenues
would have decreased by approximately $1.1 billion versus the same
period last year. During the third quarter of 2001, the Company's
revenues, yield, revenue passenger miles and available seat miles
were severely impacted by the September 11, 2001 terrorist attacks, a
worsening of the U.S. economy that had already been dampening the
demand for travel both domestically and internationally prior to the
September 11, 2001 events, the reduced operating schedule, business
travel restrictions imposed by numerous companies as a result of the
September 11, 2001 attacks, and increased fare sale activity
occurring subsequent to the September 11 attacks to encourage
passengers to resume flying. The Company estimates the September 11,
2001 terrorist attacks to have negatively impacted the Company's
revenues by approximately $550 million to $650 million for the three
months ended September 30, 2001.
American's passenger revenues decreased by 21.6 percent, or $950
million. American's yield (the average amount one passenger pays to
fly one mile) of 12.22 cents decreased by 12.1 percent compared to
the same period in 2000. Domestic yields decreased 15.9 percent from
the third quarter of 2000. International yields decreased 3.9
percent, primarily due to a decrease of 9.0 percent and 6.2 percent
in European and Pacific yields, respectively, partially offset by an
increase of approximately 1.6 percent in Latin American yields.
American's traffic or revenue passenger miles (RPMs) decreased 10.8
percent to 28.2 billion miles for the quarter ended September 30,
2001. American's capacity or available seat miles (ASMs) of 38.9
billion miles decreased 6.0 percent compared to the third quarter of
2000. As a result, American's load factor dropped 4 points year-over-
year. American's domestic traffic decreased 11.7 percent on a
capacity decrease of 6.5 percent while international traffic
decreased 9.1 percent on a capacity decrease of 5.1 percent.
International activity included a 10.3 percent decrease in traffic to
Latin America on a capacity decrease of 8.9 percent, a 9.4 percent
decrease in traffic to Europe on a capacity decrease of 3.9 percent,
and a 2.8 percent decrease in traffic to the Pacific on a capacity
increase of 9.6 percent.
TWA's passenger revenues were $591 million for the third quarter of
2001. TWA's traffic was 5.4 billion RPMs while capacity was 8
billion ASMs.
-13-
<Page> 16
RESULTS OF OPERATIONS (Continued)
AMR Eagle's passenger revenues decreased 13.3 percent, or $52
million. The decrease in passenger revenues resulted from a 10.0
percent decrease in passenger yield and a 3.6 percent decrease in
traffic.
Cargo revenues decreased $25 million, or 13.7 percent, due primarily
to the impact of the September 11, 2001 terrorist attacks and the
softening of the U.S. economy.
The Company's operating expenses increased 14.7 percent, or
approximately $690 million, and included approximately $771 million
related to TWA's operations for the third quarter 2001. In addition
to the specific explanations provided below, the significant decline
in passenger traffic resulting from the terrorist acts of September
11, 2001 caused a favorable impact on certain passenger-related
operating expenses, including aircraft fuel, other rentals and
landing fees, commissions to agents and food service. American's
cost per ASM increased 7.6 percent to 11.21 cents, excluding the
impact of the third quarter 2001 special charges and U.S. Government
grant. 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 5.8 percent, excluding the impact of the special
charges and U.S. Government grant. Wages, salaries and benefits
increased 23.9 percent, or $412 million, and included approximately
$313 million related to the addition of TWA. The remaining increase
of approximately $99 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 third quarter of 2001, the Company recorded
approximately $100 million in additional wages, salaries and benefits
related to the Company's new or tentative labor contracts. This was
mostly offset by a $98 million decrease in the provision for profit-
sharing as compared to the corresponding period in the prior year.
Aircraft fuel expense increased 19.8 percent, or $128 million, and
included approximately $117 million related to the addition of TWA.
The increase in aircraft fuel expense was due to a 5.3 percent
increase in the Company's average price per gallon and a 12.2 percent
increase in the Company's fuel consumption, including TWA.
Depreciation and amortization expense increased 19.9 percent, or $61
million, due primarily to the addition of new aircraft and an
increase of approximately $30 million related to TWA. Maintenance,
materials and repairs increased 19.4 percent, or $54 million, and
included approximately $38 million related to TWA. The remaining
increase was due primarily to an increase in engine volumes at the
Company's maintenance bases. Other rentals and landing fees
increased $73 million, or 29.2 percent, primarily due to the addition
of TWA. Commissions to agents decreased 22.2 percent, or $59
million, and included approximately $17 million related to TWA. The
decrease was due primarily to a decrease of 8.6 percent in combined
passenger revenues and the continued benefit from commission
structure changes implemented in 2000. Aircraft rentals increased
$79 million, or 52.3 percent, due primarily to the addition of TWA
aircraft. Other operating expense increased 13.3 percent, or $114
million, due primarily to the addition of TWA. Special charges
result from the September 11, 2001 terrorist events and include
approximately $496 million related to aircraft impairments and
groundings, $61 million in facility exit costs, $55 million in
employee charges, and approximately $20 million in other charges (see
footnote 2 to the condensed consolidated financial statements for
additional information relating to these charges). The Company will
continue to evaluate whether any additional provisions and/or
revisions to the charges recorded as of September 30, 2001 are
required during the fourth quarter of 2001. U.S. Government grant
represents the reimbursement for direct and incremental costs
resulting from the terrorist attacks, including impairment charges
and lost revenues, recognized by the Company in the third quarter of
2001 relating to the Air Transportation Safety and System
Stabilization Act (see further discussion in footnote 2 to the
condensed consolidated financial statements).
Other income (expense), historically a net expense, increased $31
million due primarily to a decrease in interest income from the
Company's lower investment balances during 2001.
-14-
<Page> 17
RESULTS OF OPERATIONS (Continued)
<Table>
<Caption>
OPERATING STATISTICS Three Months Ended
September 30,
2001 2000
<s> <c> <c>
American Airlines
Revenue passenger miles (millions) 28,158 31,584
Available seat miles (millions) 38,926 41,418
Cargo ton miles (millions) 501 576
Passenger load factor 72.3% 76.3%
Breakeven load factor (*) 87.1% 65.4%
Passenger revenue yield per passenger mile (cents) 12.22 13.90
Passenger revenue per available seat mile (cents) 8.84 10.60
Cargo revenue yield per ton mile (cents) 28.85 31.60
Operating expenses per available seat mile
(cents) (*) 11.21 10.42
Fuel consumption (gallons, in millions) 753 796
Fuel price per gallon (cents) 81.4 77.3
Fuel price per gallon, excluding fuel taxes (cents) 76.0 71.7
Operating aircraft at period-end 717 720
TWA
Revenue passenger miles (millions) 5,385 -
Available seat miles (millions) 7,982 -
Passenger load factor 67.5% -
Passenger revenue yield per passenger mile (cents) 10.98 -
Passenger revenue per available seat mile (cents) 7.41 -
Operating expenses per available seat mile
(cents) (*) 10.16 -
Operating aircraft at period-end 176 -
AMR Eagle
Revenue passenger miles (millions) 962 998
Available seat miles (millions) 1,664 1,631
Passenger load factor 57.8% 61.2%
Operating aircraft at period-end 279 270
</Table>
(*) Excludes the third quarter 2001 impact of the special charges and
U.S. Government grant.
-15-
<Page> 18
RESULTS OF OPERATIONS (Continued)
Operating aircraft at September 30, 2001, included:
<Table>
<Caption>
<s> <c> <c> <c>
American Airlines Aircraft: TWA Aircraft:
Airbus A300-600R 35 Boeing 717-200 27
Boeing 727-200 50 Boeing 757-200 27
Boeing 737-800 71 Boeing 767-300 Extended Range 9
Boeing 757-200 109 McDonnell Douglas MD-80 103
Boeing 767-200 8 McDonnell Douglas DC-9 10
Boeing 767-200 Extended Range 21 Total 176
Boeing 767-300 Extended Range 49
Boeing 777-200 Extended Range 37 AMR Eagle Aircraft:
Fokker 100 74 ATR 42 30
McDonnell Douglas MD-11 4 Embraer 135 40
McDonnell Douglas MD-80 259 Embraer 140 8
717 Embraer 145 56
Super ATR 43
Saab 340 77
Saab 340B Plus 25
Total 279
</Table>
Average aircraft age is 10.8 years for American's aircraft, 8.8 years
for TWA aircraft, and 6.5 years for AMR Eagle aircraft.
The Company has announced that it will remove from service its
remaining Boeing 727-200 fleet by early 2002 and its remaining McDonnell
Douglas DC-9 fleet by October 2001.
-16-
<Page> 19
RESULTS OF OPERATIONS (Continued)
For the Nine Months Ended September 30, 2001 and 2000
Summary AMR's net loss for the nine months ended September 30, 2001
was $964 million, or $6.26 loss per share. This compares with income
from continuing operations before extraordinary loss of $732 million,
or $4.55 per share diluted, for the same period in 2000. AMR's
operating loss for the nine months ended September 30, 2001 was $1.3
billion, compared to operating income of $1.3 billion for the same
period in 2000. On September 11, 2001, two of American's aircraft
were hijacked and destroyed in terrorist attacks on The World Trade
Center in New York City and the Pentagon in northern Virginia. On
the same day, two United Air Lines aircraft were also hijacked and
used in terrorist attacks. In response to the terrorist attacks, the
FAA issued a federal ground stop order on September 11, 2001,
prohibiting all flights to, from, and within the United States.
Airports did not reopen until September 13, 2001 (except for
Washington Reagan National Airport, which was partially reopened on
October 4, 2001). The Company was able to operate only a portion of
its scheduled flights for several days thereafter. When flights were
permitted to resume, passenger traffic and yields on the Company's
flights were significantly lower than prior to the attacks. As a
result, the Company announced that it would reduce its operating
schedule to approximately 80 percent of the schedule it flew prior to
September 11, 2001. On April 9, 2001, the Company purchased
substantially all of the assets and assumed certain liabilities of
TWA. Accordingly, the operating results of TWA since the date of
acquisition have been included in the accompanying consolidated
financial statements for the nine month period ended September 30,
2001. AMR's third quarter 2000 results from continuing operations
include the effect of a labor disruption at one of the Company's
major competitors which positively impacted the Company's net
earnings by an estimated $0.22 to $0.28 per share diluted.
The Company's revenues increased approximately $315 million, or 2.1
percent, during the first nine months of 2001 versus the same period
last year. However, excluding TWA's revenues for the period April
10, 2001 through September 30, 2001, the Company's revenues would
have decreased approximately $1.1 billion versus the same period last
year. The Company's 2001 revenues, yield, revenue passenger miles and
available seat miles were severely impacted by the September 11, 2001
terrorist attacks, the reduced operating schedule, a worsening of the
U.S. economy that had already been dampening the demand for travel
both domestically and internationally prior to the September 11, 2001
events, business travel restrictions imposed by numerous companies as
a result of the September 11, 2001 attacks, and increased fare sale
activity occurring subsequent to the September 11 attacks to
encourage passengers to resume flying. The Company estimates the
September 11, 2001 terrorist attacks to have negatively impacted the
Company's revenues by approximately $550 million to $650 million.
American's passenger revenues decreased by 8.1 percent, or $1
billion. American's yield of 13.49 cents decreased by 2.7 percent
compared to the same period in 2000. Domestic yields decreased 3.9
percent from the first nine months of 2000. International yields
increased 0.2 percent, reflecting an increase of 4.1 percent in Latin
American yields, mostly offset by a decrease of 7.0 percent and 2.6
percent in Pacific and European yields, respectively.
American's traffic or RPMs decreased 5.5 percent to 84.1 billion
miles for the nine months ended September 30, 2001. American's
capacity or ASMs decreased 2.2 percent to 118.9 billion miles for the
first nine months of 2001. American's domestic traffic decreased 6.8
percent on a capacity decrease of 2.4 percent while international
traffic decreased 2.9 percent on capacity decreases of 1.6 percent.
International activity included a 6.7 percent increase in traffic to
the Pacific on a capacity increase of 8.2 percent, a 4.0 percent
decrease in traffic to Europe on a capacity increase of 0.3 percent,
and a 3.9 percent decrease in traffic to Latin America on a capacity
decrease of 5.2 percent.
TWA's passenger revenues were approximately $1.3 billion for the
period April 10, 2001 through September 30, 2001. TWA's traffic was
11.1 billion RPMs while capacity was 16 billion ASMs.
-17-
<Page> 20
RESULTS OF OPERATIONS (Continued)
The Company's operating expenses increased 21.7 percent, or
approximately $2.9 billion, and included approximately $1.5 billion
related to TWA's operations for the period April 10, 2001 through
September 30, 2001. In addition to the specific explanations provided
below, the significant decline in passenger traffic resulting from
the terrorist acts of September 11, 2001 caused a favorable impact on
certain passenger-related operating expenses, including aircraft
fuel, other rentals and landing fees, commissions to agents and food
service. American's cost per ASM increased 8.7 percent to 11.15
cents, excluding the impact of the second and third quarter 2001
special charges and U.S. Government grant. 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 5
percent, excluding the impact of the special charges and U.S.
Government grant. Wages, salaries and benefits increased 19.8
percent, or $993 million, and included approximately $600 million
related to the addition of TWA. The remaining increase of
approximately $393 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 nine months ended September 30, 2001, the
Company recorded approximately $280 million in additional wages,
salaries and benefits related to the Company's new or tentative labor
contracts. This was mostly offset by a $270 million decrease in the
provision for profit-sharing as compared to the corresponding period
in the prior year. Aircraft fuel expense increased 31.5 percent, or
$557 million, and included approximately $237 million related to the
addition of TWA. The increase in aircraft fuel expense was due to a
13.9 percent increase in the Company's average price per gallon and a
12 percent increase in the Company's fuel consumption, including TWA.
Depreciation and amortization expense increased 16.2 percent, or $144
million, due primarily to the addition of new aircraft and an
increase of approximately $55 million related to TWA. Maintenance,
materials and repairs increased $89 million, or 10.8 percent, and
included approximately $54 million related to TWA. The remaining
increase was due primarily to an increase in engine volumes at the
Company's maintenance bases. Other rentals and landing fees
increased $157 million, or 21.1 percent, and included approximately
$97 million related to the addition of TWA. The remaining increase
of $60 million is due primarily to higher facilities rent and landing
fees across American's system. Commissions to agents decreased 13.2
percent, or $105 million, and included approximately $48 million
related to TWA. Despite an increase of approximately 1.9 percent in
combined passenger revenues, the Company benefited from commission
structure changes implemented in 2000. Aircraft rentals increased
$149 million, or 32.7 percent, due primarily to the addition of TWA
aircraft. Other operating expense increased 17.1 percent, or $422
million, and included approximately $264 million related to TWA. The
remaining increase is due primarily to increases in outsourced
services, data processing, TWA integration expenses, and travel and
incidental costs. Special charges result from the September 11, 2001
terrorist events and the asset impairment charge recorded in the
second quarter of 2001. The September 11, 2001 special charges
include approximately $496 million related to aircraft impairments
and groundings, $61 million in facility exit costs, $55 million in
employee charges, and approximately $20 million in other charges.
During the second quarter of 2001, the Company recorded an asset
impairment charge of $685 million relating to the writedown of the
carrying value of the Company's Fokker 100, Saab 340 and ATR-42
aircraft and related rotables. The Company will continue to evaluate
whether any additional provisions and/or revisions to the charges
recorded as of September 30, 2001 are required during the fourth
quarter of 2001 (see further discussion in footnote 2 to the
condensed consolidated financial statements). U.S. Government grant
represents the reimbursement for direct and incremental costs
resulting from the terrorist attacks, including impairment charges
and lost revenues, recognized by the Company in the third quarter of
2001 relating to the Air Transportation Safety and System
Stabilization Act (see further discussion in footnote 2 to the
condensed consolidated financial statements).
Other income (expense), historically a net expense, increased $67
million due primarily to a decrease of $28 million in interest income
resulting from lower investment balances throughout most of the year
and a decrease of $25 million in miscellaneous-net. The latter
reflects the $57 million gain in the second quarter of 2000 on the
sale of the Company's warrants to purchase 5.5 million shares of
priceline common stock 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, offset by the write-down of certain
investments held by the Company during 2001.
-18-
<Page> 21
RESULTS OF OPERATIONS (Continued)
<Table>
<Caption>
OPERATING STATISTICS Nine Months Ended
September 30,
2001 2000
<s> <c> <c>
American Airlines
Revenue passenger miles (millions) 84,115 89,055
Available seat miles (millions) 118,920 121,533
Cargo ton miles (millions) 1,624 1,693
Passenger load factor 70.7% 73.3%
Breakeven load factor (*) 76.0% 64.9%
Passenger revenue yield per passenger mile (cents) 13.49 13.87
Passenger revenue per available seat mile (cents) 9.54 10.17
Cargo revenue yield per ton mile (cents) 30.22 31.00
Operating expenses per available seat mile
(cents) (*) 11.15 10.26
Fuel consumption (gallons, in millions) 2,280 2,285
Fuel price per gallon (cents) 83.8 73.6
Fuel price per gallon, excluding fuel taxes (cents) 78.3 68.2
Operating aircraft at period-end 717 720
TWA
Revenue passenger miles (millions) 11,067 -
Available seat miles (millions) 16,010 -
Passenger load factor 69.1% -
Passenger revenue yield per passenger mile (cents) 11.41 -
Passenger revenue per available seat mile (cents) 7.89 -
Operating expenses per available seat mile
(cents) (*) 9.80 -
Operating aircraft at period-end 176 -
AMR Eagle
Revenue passenger miles (millions) 2,851 2,822
Available seat miles (millions) 4,931 4,691
Passenger load factor 57.8% 60.1%
Operating aircraft at period-end 279 270
</Table>
(*) Excludes the second and third quarter 2001 impact of the special
charges and U.S. Government grant.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the nine month period
ended September 30, 2001 was $1.3 billion, a decrease of
approximately $1.4 billion over the same period in 2000, due
primarily to a decrease in income from continuing operations from the
corresponding period in the prior year. Capital expenditures for the
first nine months of 2001 were $3.1 billion, and included the
acquisition of 20 Boeing 737-800s, 10 Boeing 777-200ERs, eight Boeing
757-200s, eight Embraer 140s, seven Embraer 135s, six Embraer 145
aircraft, and the purchase of 18 McDonnell Douglas MD-80 aircraft
previously leased by TWA. These capital expenditures were financed
primarily through secured mortgage and debt agreements. Four Boeing
737-800 aircraft were financed through sale-leaseback transactions.
On April 9, 2001, the Company purchased substantially all of the
assets and assumed certain liabilities of TWA for approximately $742
million, which was funded from the Company's existing cash and short-
term investments. 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. Proceeds from the sale of equipment and property of $326
million included the proceeds received upon the delivery of four
McDonnell Douglas MD-11 aircraft to Federal Express.
-19-
<Page> 22
As of September 30, 2001, the Company had commitments to acquire
the following aircraft: 49 Boeing 737-800s, 15 Boeing 767-300ERs, 15
Boeing 757-200s, 10 Boeing 777-200ERs, 131 Embraer regional jets and
25 Bombardier CRJ-700s. Future payments for all aircraft, including
the estimated amounts for price escalation, will approximate $600
million during the remainder of 2001, $1.2 billion in 2002, $800
million in 2003 and an aggregate of approximately $3.3 billion in 2004
and beyond. These cash flows reflect a tentative agreement the Company
has with Boeing to defer 29 of its 45 2002 deliveries to 2004 and beyond.
As the Company and Boeing are still negotiating the final terms of the
tentative agreement, the above aircraft commitment and cash flow amounts
could change.
The Company has available a variety of future financing sources,
including, but not limited to: (i) the receipt of the remainder of the
U.S. Government grant, which approximates $452 million, (ii)
additional secured aircraft debt agreements, including the issuance
of approximately $1.3 billion of enhanced equipment trust
certificates, with $740 million received at closing and the remainder
to be received as aircraft are delivered, (iii) sale-leaseback
transactions of owned property, including aircraft and real estate,
(iv) securitization of future operating receipts, (v) unsecured
borrowings, and (vi) federal loan guarantees as provided under the Act
and other types of secured debt agreements. No assurance can be given
that any of these financing sources will be available on terms acceptable
to the Company.
As of September 30, 2001, the Company is in compliance with the two
financial covenants contained in the Company's credit facility agreements.
However, it is likely that a significant loss in the fourth quarter
of 2001 could cause the Company to violate one or both covenants,
unless they are modified. American is currently pursuing such modifications
to the agreements so that the Company will remain in compliance with the
covenants. Absent such modification, the $819 million currently outstanding
under the credit facility agreements could become due and payable in
late first quarter 2002.
Subsequent to the September 11, 2001 events, Standard & Poor's
downgraded the senior unsecured credit rating of American from BBB- to
BB and Moody's downgraded the senior unsecured credit rating of
American from Baa3 to Ba2. The long-term corporate credit ratings of
American remain on Standard & Poor's CreditWatch with negative
implications and Moody's has retained the credit ratings of American
on review for possible downgrade.
The impact of the terrorist attacks of September 11, 2001 and their
aftermath on the Company and the sufficiency of its financial
resources to absorb that impact will depend on a number of factors,
including: (i) the magnitude and duration of the adverse impact of the
terrorist attacks on the economy in general, and the airline industry
in particular; (ii) the Company's ability to reduce its operating
costs and conserve its financial resources, taking into account the
increased costs it will incur as a consequence of the attacks,
including those referred to below; (iii) the higher costs associated
with new airline security directives and any other increased
regulation of air carriers; (iv) the significantly higher costs of
aircraft insurance coverage for future claims caused by acts of war,
terrorism, sabotage, hijacking and other similar perils, and the
extent to which such insurance will continue to be available; (v) the
Company's ability to raise additional financing; (vi) the price and
availability of jet fuel, and the availability to the Company of fuel
hedges in light of current industry conditions; (vii) the number of
crew members who may be called for duty in the reserve forces of the
armed services and the resulting impact on the Company's ability to
operate as planned; (viii) any resulting declines in the values of the
aircraft in the Company's fleet and any aircraft or other asset
impairment charge, including routes, slots, gates and other
intangibles; (ix) the extent of the benefits received by the Company
under the Act, taking into account any challenges to and
interpretations or amendments of the Act or regulations issued
pursuant thereto; and (x) the Company's ability to retain its
management and other employees in light of current industry conditions
and their impact on compensation and morale.
At this point, due in part to the lack of predictability of future
traffic, business mix and yields, the Company is unable to fully
estimate the impact on it of the events of September 11, 2001 and
their consequences and the sufficiency of its financial resources to
absorb that impact, including the mitigating effects of the Act and
the Company's aggressive actions to reduce its costs. However, given
the magnitude of these unprecedented events and the possible
subsequent effects, the Company expects that the adverse impact to the
Company's financial condition, its operations and its prospects will
be material and could be highly material.
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<Page> 23
FOURTH QUARTER OUTLOOK
Capacity for American and TWA combined will be down about 20 percent
from last year's levels. Eagle capacity will be down about 5 percent.
Traffic for the fourth quarter is challenging to predict, if not
impossible. As of October 22, 2001, advanced booking levels are down six
points in November and down four points in December, compared to the same
date and for the same periods last year. These numbers could increase
however, as current trends show a higher than normal number of booked
passengers not showing up for their flights. Yields may decline more
steeply in the fourth quarter than in the third, owing to more - and
deeper - fare sales and a weaker mix of business traffic. AMR unit
costs are expected to come in about two percent higher than last year
- at 11.8 cents - despite a 20 percent cut in capacity. This is due
in large part to the numerous cost reduction initiatives the Company
put in place in response to the September 11 terrorist attacks -
cutting capacity and grounding aircraft, sharply reducing capital
spending, closing facilities, trimming food service and reducing its
workforce. In addition, the Company expects to see lower fuel prices.
Somewhat offsetting these cost savings will be higher security costs,
higher insurance premiums and greater interest expense.
Notwithstanding the cost savings initiatives, the Company is not able
in the short term to reduce its costs commensurate with its capacity
(and revenue). As a result, the Company expects to incur a
significant loss in the fourth quarter, as well as for the full year
2001.
SPECIAL RISK FACTOR
Negative Impact of Terrorist Attacks Among the effects experienced
by the Company from the September 11, 2001 terrorist attacks have been
significant flight disruption costs caused by the FAA's imposed
grounding of the U.S. airline industry's fleet, significantly
increased security and other costs, significantly higher ticket
refunds, significantly reduced load factors, and significantly reduced
yields. Further terrorist attacks using commercial aircraft in flight
could result in another grounding of the Company's fleet, and would
likely result in significant reductions in load factor and yields,
along with increased ticket refund, security and other costs. In
addition, terrorist attacks not involving commercial aircraft, or the
general increase in hostilities relating to reprisals against
terrorist organizations or otherwise, could result in decreased load
factors and yields for airlines, including the Company, and could also
result in increased costs.
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 $62 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. However, with the decline in the Company's
market capitalization, in part due to the terrorist attacks on
September 11, 2001 the adoption of SFAS 142 might result in the write-
off or write-down of the Company's goodwill.
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<Page> 24
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. Forward looking
statements include the Company's expectations concerning operations
and financial conditions, overall economic conditions, plans and
objectives for future operations, and the impact of the events of
September 11, 2001 on American and the sufficiency of the Company's
financial resources to absorb that impact. 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. These factors include the adverse impact of the
terrorist attacks on the economy in general, the likelihood of a
further decline in air travel because of the attacks and as a result
of a reduction in American's operations, higher costs associated with
new security directives and potentially new regulatory initiatives,
higher costs for insurance and the continued availability of such
insurance, the number of crew members who may be called for duty in
the armed services and the impact on American's ability to operate as
planned. Additional information concerning these and other factors
that could cause actual results to differ is contained in the
Company's Securities and Exchange Commission filings, including 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 September 30, 2001 cost per gallon of fuel
would result in an increase in the Company's aircraft fuel expense of
approximately $170 million for the next twelve months, net of fuel
hedge instruments outstanding at September 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 September 30, 2001, the Company, including the
estimated fuel consumption of TWA, has hedged approximately 58
percent of its remaining 2001 fuel requirements, 38 percent of its
2002 fuel requirements, and 20 percent of its 2003 fuel requirements.
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<Page> 25
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 moneys 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. 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. Following the
events of September 11, 2001, AMR requested, and the 10th Circuit
Court of Appeals agreed, to defer the filing of all briefs until
2002. 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.
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<Page> 26
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.
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<Page> 27
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 nine months ended September 30, 2001 and 2000.
Form 8-Ks filed under Item 5 - Other Events
On July 19, 2001, AMR filed a report on Form 8-K relative to a
press released issued by AMR to announce AMR's second quarter 2001
earnings. In addition, the Form 8-K included information regarding:
(i) American Airlines, Inc. (American) contract status with the
Association of Professional Flight Attendants, and (ii) that on June
26, 2001, the U.S. Department of Justice appealed the granting of
American's motion for summary judgment in the U.S. government's 1999
civil lawsuit alleging predatory pricing by American.
On August 3, 2001, AMR filed a report on Form 8-K relative to a
press released issued by American to announce: (i) American and
British Airways have agreed to create a new alliance that would boost
competition, deliver significant benefits for international air
travelers, and move toward a level playing field with other global
airline alliances, and (ii) American and British Airways will file
applications for antitrust immunity in the United States and clearance
for their proposals in the United Kingdom and with the European
Commission.
On August 21, 2001, AMR filed a report on Form 8-K relative to a
press released issued by American to announce that American would
accelerate the retirement of five additional Boeing 727 aircraft and
will retire its remaining four McDonnell Douglas MD-11 aircraft by
November 1, 2001.
On September 7, 2001, AMR filed a report on Form 8-K relative to a
press release issued by AMR to announce: (i) AMR expects a third
quarter loss considerably larger than its second quarter loss in
addition to a significant fourth quarter loss, and (ii) American will
retire five more Boeing 727 aircraft earlier than originally planned.
On September 11, 2001, AMR filed a report on Form 8-K relative to a
press release issued by American to confirm that American lost two
aircraft in tragic events on September 11, 2001.
On September 19, 2001, AMR filed a report on Form 8-K regarding the
potential impact to the Company of the September 11, 2001 terrorist
attacks.
On September 25, 2001, AMR filed a report on Form 8-K providing:
(i) an update of the potential impact to the Company of the September
11, 2001 terrorist attacks, (ii) information pertaining to the Air
Transportation Safety and System Stabilization Act, (iii) Standard and
Poor's and Moody's downgrade of American's credit rating, and (iv) the
announced job reductions.
Form 8-Ks furnished under Item 9 - Regulation FD Disclosure
On July 11, 2001, AMR filed a report on Form 8-K to announce
information relating to AMR's intent to host a conference call on
July 18, 2001 with the financial community relating to its second
quarter 2001 earnings.
On August 30, 2001, AMR filed a report on Form 8-K to provide a
monthly update of certain data regarding its unit costs, capacity,
traffic and fuel, and an updated fleet plan.
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<Page> 28
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMR CORPORATION
Date: October 24, 2001 BY: /s/ Thomas W. Horton
Thomas W. Horton
Senior Vice President and Chief
Financial Officer
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<Page> 29
Exhibit 12
AMR CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(in millions)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
<s> <c> <c> <c> <c>
Earnings:
Earnings (loss) from continuing
operations before income taxes
and extraordinary loss $(636) $ 525 $(1,486) $1,204
Add: Total fixed charges (per below) 419 327 1,173 986
Less: Interest capitalized 37 36 116 110
Total earnings (loss) $(254) $ 816 $ (429) $2,080
Fixed charges:
Interest, including interest
capitalized $117 $ 114 $ 357 $ 340
Portion of rental expense
representative of the interest
factor 294 208 796 633
Amortization of debt expense 8 5 20 13
Total fixed charges $419 $ 327 $1,173 $ 986
Ratio of earnings to fixed charges - 2.50 - 2.11
Coverage deficiency $673 - $1,602 -
</Table>
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