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 MARCH 31, 2001.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From to .
--------------- ----------------
Commission file number 1-2691.
AMERICAN AIRLINES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1502798
- ---------------------------------------- -------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
- ---------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
---------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
----- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $1 par value - 1,000 shares as of April 17, 2001.
The registrant meets the conditions set forth in, and is filing this form with
the reduced disclosure format prescribed by, General Instructions H(1)(a) and
(b) of Form 10-Q.
================================================================================
2
INDEX
AMERICAN AIRLINES, INC.
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three months ended March 31, 2001 and 2000
Condensed Consolidated Balance Sheets - March 31, 2001 and December 31, 2000
Condensed Consolidated Statements of Cash Flows -- Three months ended March 31, 2001 and 2000
Notes to Condensed Consolidated Financial Statements - March 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signature
3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions)
- --------------------------------------------------------------------------------
Three Months Ended March 31,
----------------------------
2001 2000
---------- ----------
REVENUES
Passenger $ 3,935 $ 3,774
Cargo 174 166
Other 269 262
---------- ----------
Total operating revenues 4,378 4,202
EXPENSES
Wages, salaries and benefits 1,632 1,514
Aircraft fuel 650 527
Depreciation and amortization 278 256
Other rentals and landing fees 236 216
Maintenance, materials and repairs 234 222
Commissions to agents 212 242
Food service 181 182
Aircraft rentals 140 140
Other operating expenses 807 717
---------- ----------
Total operating expenses 4,370 4,016
---------- ----------
OPERATING INCOME 8 186
OTHER INCOME (EXPENSE)
Interest income 22 30
Interest expense (76) (70)
Interest capitalized 39 36
Related party interest - net (11) 5
SFAS 133 adjustments (20) --
Miscellaneous - net (6) (6)
---------- ----------
(52) (5)
---------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES (44) 181
Income tax provision (benefit) (10) 76
---------- ----------
NET EARNINGS (LOSS) $ (34) $ 105
========== ==========
The accompanying notes are an integral part of these financial statements.
-1-
4
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
- --------------------------------------------------------------------------------
March 31, December 31,
2001 2000
---------- ------------
ASSETS
CURRENT ASSETS
Cash $ 168 $ 86
Short-term investments 1,274 1,549
Receivables, net 1,374 1,242
Inventories, net 629 656
Deferred income taxes 673 675
Other current assets 209 186
---------- ------------
Total current assets 4,327 4,394
EQUIPMENT AND PROPERTY
Flight equipment, net 12,465 12,081
Other equipment and property, net 1,679 1,607
Purchase deposits for flight equipment 1,537 1,590
---------- ------------
15,681 15,278
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment, net 1,219 1,252
Other equipment and property, net 96 96
---------- ------------
1,315 1,348
Route acquisition costs and airport operating and gate lease
rights, net 1,092 1,103
Other assets, net 1,233 1,038
---------- ------------
$ 23,648 $ 23,161
========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,179 $ 1,178
Accrued liabilities 1,687 2,067
Air traffic liability 2,960 2,696
Payable to affiliates, net 529 511
Current maturities of long-term debt 118 108
Current obligations under capital leases 219 201
---------- ------------
Total current liabilities 6,692 6,761
Long-term debt, less current maturities 3,116 2,601
Obligations under capital leases, less current obligations 1,053 1,163
Deferred income taxes 2,156 2,080
Other liabilities, deferred gains, deferred
credits and postretirement benefits 4,156 4,121
STOCKHOLDER'S EQUITY
Common stock -- --
Additional paid-in capital 1,847 1,847
Accumulated other comprehensive income 72 (2)
Retained earnings 4,556 4,590
---------- ------------
6,475 6,435
---------- ------------
$ 23,648 $ 23,161
========== ============
The accompanying notes are an integral part of these financial statements.
-2-
5
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
- --------------------------------------------------------------------------------
Three Months Ended March 31,
--------------------------------
2001 2000
--------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (43) $ 626
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, including purchase deposits for flight equipment (746) (669)
Net decrease (increase) in short-term investments 275 (192)
Proceeds from sale of equipment and property 126 70
--------- ----------
Net cash used for investing activities (345) (791)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (80) (93)
Proceeds from issuance of long-term debt 532 --
Funds transferred from affiliates, net 18 256
--------- -----------
Net cash provided by financing activities 470 163
Net increase (decrease) in cash 82 (2)
Cash at beginning of period 86 72
--------- -----------
Cash at end of period $ 168 $ 70
========= ===========
The accompanying notes are an integral part of these financial statements.
-3-
6
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with 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, 2000 has been derived from the audited financial statements at that
date. For further information, refer to the consolidated financial
statements and footnotes thereto included in the American Airlines, Inc.
(American or the Company) Annual Report on Form 10-K for the year ended
December 31, 2000. Certain amounts from 2000 have been reclassified to
conform with the 2001 presentation.
2. Accumulated depreciation of owned equipment and property at March 31, 2001
and December 31, 2000, was $8.0 billion and $7.8 billion, respectively.
Accumulated amortization of equipment and property under capital leases at
March 31, 2001 and December 31, 2000, was $1.0 billion.
3. As discussed in the notes to the consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2000, the Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues and
other cost recovery methods. Future costs of the remediation effort may be
borne by carriers operating at the Airport, including American, through
increased landing fees and/or other charges since certain of the
potentially responsible parties are no longer in business. The future
increase in landing fees and/or other charges may be material but cannot be
reasonably estimated due to various factors, including the unknown extent
of the remedial actions that may be required, the proportion of the cost
that will ultimately be recovered from the responsible parties, and
uncertainties regarding the environmental agencies that will ultimately
supervise the remedial activities and the nature of that supervision. In
addition, the Company is subject to environmental issues at various other
airport and non-airport locations. Management believes, after considering a
number of factors, that the ultimate disposition of these environmental
issues is not expected to materially affect the Company's consolidated
financial position, results of operations or cash flows. Amounts recorded
for environmental issues are based on the Company's current assessments of
the ultimate outcome and, accordingly, could increase or decrease as these
assessments change.
4. As of March 31, 2001, the Company had commitments to acquire the following
aircraft: 62 Boeing 737-800s, 23 Boeing 757-200s and 16 Boeing 777-200ERs.
Deliveries of all aircraft continue through 2004. Payments for all aircraft
will approximate $1.7 billion during the remainder of 2001, $1.1 billion in
2002, $350 million in 2003 and approximately $55 million in 2004.
5. On January 10, 2001, the Company announced three transactions that would
substantially increase the scope of its existing network. The first of
these transactions was consummated on April 9, 2001 when the Company
purchased substantially all of the assets of Trans World Airlines, Inc.
(TWA) for approximately $625 million in cash (subject to certain working
capital adjustments), including the satisfaction of $312 million in
debtor-in-possession financing which was funded by the Company's parent
(AMR), and assumed certain liabilities. The Company funded the acquisition
of TWA's assets with its existing cash and short-term investments.
-4-
7
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
As a result of the three transactions announced on January 10, 2001, and
for several other reasons, the Company has initiated an impairment review
of certain fleet types in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." This review, which is expected to
be completed during the second quarter of 2001, could result in an
impairment charge to be taken by the Company. The size of any resulting
2001 charge is not presently known, but may be significant.
6. Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended (SFAS 133). SFAS 133 requires the Company
to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in
earnings. The adoption of SFAS 133 did not result in a cumulative effect
adjustment being recorded to net income for the change in accounting.
However, the Company recorded a transition adjustment of approximately $64
million (net of tax of $38 million) in accumulated other comprehensive
income in the first quarter of 2001.
FUEL PRICE RISK MANAGEMENT
American enters into fuel swap and option contracts to protect against
increases in jet fuel prices. These instruments generally have maturities
of up to 36 months. In accordance with SFAS 133, the Company accounts for
its fuel swap and option contracts as cash flow hedges. Upon the adoption
of SFAS 133, the Company recorded the fair value of its fuel hedging
contracts in other assets and accumulated other comprehensive income on the
consolidated balance sheets. Effective gains or losses on fuel hedging
agreements are deferred in accumulated other comprehensive income and are
recognized in earnings as a component of fuel expense when the underlying
fuel being hedged is used. The ineffective portion of the fuel hedge
agreements is calculated as the excess of the change in the fuel hedge
agreements intrinsic value relative to the change in the value of the fuel
being hedged. In calculating the ineffective portion of the fuel hedge
instrument, the Company excludes the time value component related to any
option premiums paid. The time value component related to any option
premiums is recognized in earnings during the life of the contract. Both
the ineffective portion and time value component of the fuel hedge
agreements are recognized as a component of SFAS 133 adjustments on the
consolidated statements of operations.
For the three months ended March 31, 2001, the Company recognized hedging
gains of approximately $44 million on fuel used during such period, which
are classified in fuel expense on the accompanying consolidated statements
of operations. In addition, for the three months ended March 31, 2001, the
Company recorded an approximate $20 million loss which is classified as
SFAS 133 adjustments on the accompanying consolidated statements of
operations. This amount consists of a $29 million loss relating to time
value, partially offset by a $9 million gain relating to the
ineffectiveness of the fuel hedging agreements. The fair value of the
Company's fuel hedging agreements at March 31, 2001, representing the
amount the Company would receive to terminate the agreements, totaled $202
million.
-5-
8
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
INTEREST RATE RISK MANAGEMENT
American utilizes interest rate swap contracts to effectively convert a
portion of its fixed-rate obligations to floating-rate obligations. Under
SFAS 133, the Company accounts for its interest rate swap contracts as fair
value hedges whereby the fair value of the related interest rate swap
agreement is reflected in other assets with the corresponding liability
being recorded as a component of long-term debt on the consolidated balance
sheets. The Company has no ineffectiveness with regard to its interest rate
swap contracts as each interest rate swap agreement meets the criteria for
accounting under the short-cut method as defined in SFAS 133 for fair value
hedges of debt instruments.
FOREIGN EXCHANGE RISK MANAGEMENT
To hedge against the risk of future exchange rate fluctuations on a portion
of American's foreign cash flows, the Company enters into various currency
put option agreements on a number of foreign currencies. In accordance with
SFAS 133, the Company accounts for its currency put option agreements as
cash flow hedges. Upon the adoption of SFAS 133, the Company recorded the
fair value of its foreign currency put option agreements in other assets
and accumulated other comprehensive income on the consolidated balance
sheets. Effective gains and loss on currency put option agreements are
deferred in accumulated other comprehensive income and are recognized in
earnings as a component of passenger revenue when the underlying hedged
revenues are recognized. The time value component related to any option
premiums is recognized in earnings during the life of the contract as a
component of passenger revenue. The Company has no ineffectiveness with
regard to its currency put option agreements.
The Company has entered into Japanese yen currency exchange agreements to
effectively convert certain yen-based lease obligations into dollar-based
obligations. Under SFAS 133, the Company accounts for its Japanese yen
currency exchange agreements as cash flow hedges whereby the fair value of
the related Japanese yen currency exchange agreements is reflected in other
assets and accumulated other comprehensive income on the consolidated
balance sheets. The Company has no ineffectiveness with regard to its
Japanese yen currency exchange agreements.
-6-
9
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
7. 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. For the three months ended March 31,
2001 and 2000, comprehensive income was $40 million and $105 million,
respectively. The difference between net loss and comprehensive income for
the three months ended March 31, 2001, is as follows (in millions):
Net loss $ (34)
Cumulative effect of adoption of SFAS 133 as of January 1,
2001, net of tax of $38 $ 64
Reclassification of derivative financial instruments into
earnings, net of tax of $20 (34)
Reclassification of SFAS 133 time value adjustments into earnings,
net of tax of $5 9
Change in fair value of derivative financial instruments, net
of tax of $20 32
-------------
Accumulated derivative gain included in other
comprehensive income, net of tax of $42 71
Unrealized gain on available-for-sale securities, net of tax
of $1 3
-------------
Comprehensive income $ 40
=============
As of March 31, 2001, the Company estimates during the next twelve months
it will reclassify from accumulated other comprehensive income into
earnings approximately $63 million (net of tax of $38 million) relating to
its derivative financial instruments.
8. During 2001, American entered into various debt agreements which are
secured by aircraft. Effective interest rates on these agreements are
based on LIBOR plus a spread and mature over various periods of time,
ranging from 2013 to 2021. As of March 31, 2001, the Company had borrowed
approximately $532 million under these agreements.
9. In April 2001, the Company's Board of Directors approved the guarantee by
American of AMR's existing debt obligations. As such, American will
unconditionally guarantee through the life of the related obligations
approximately $900 million of unsecured debt, approximately $700 million
of secured debt and approximately $1.6 billion of special facility revenue
bonds issued by municipalities.
-7-
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
American recorded a NET LOSS for the three months ended March 31, 2001 of $34
million. This compares to net earnings of $105 million for the first quarter of
2000. American's OPERATING INCOME of $8 million decreased $178 million compared
to the same period in 2000.
American's REVENUES increased $176 million, or 4.2 percent, in the first quarter
of 2001 versus the same period last year. American's PASSENGER REVENUES
increased by 4.3 percent, or $161 million. American's YIELD (the average amount
one passenger pays to fly one mile) of 14.88 cents increased by 6.7 percent
compared to the same period in 2000. Domestic yields increased 6.6 percent from
the first quarter of 2000. International yields increased 6.8 percent, primarily
due to an increase of 7.9 percent and 7.1 percent in European and Latin American
yields, respectively, partially offset by a decrease of approximately 1.0
percent in Pacific yields. Yields were up year-over-year largely due to fare
increases enacted over the course of 2000.
American's traffic or REVENUE PASSENGER MILES (RPMs) decreased 2.1 percent to
26.5 billion miles for the quarter ended March 31, 2001. American's capacity or
AVAILABLE SEAT MILES (ASMs) of 39.0 billion miles decreased 2.6 percent compared
to the first quarter of 2000. American's domestic traffic decreased 3.7 percent
on a capacity decrease of 2.7 percent and international traffic increased 1.4
percent on a capacity decrease of 2.4 percent. The decrease in domestic traffic
was due to a slowing U.S. economy, softening the demand for air travel. The
increase in international traffic was driven by a 6.9 percent increase in
traffic to the Pacific on a capacity decrease of 3.5 percent, a 0.7 percent
increase in traffic to Europe on a capacity increase of 0.1 percent and a 0.9
percent increase in traffic to Latin America on a capacity decrease of 4.1
percent. The overall decrease in capacity was due primarily to the Company's
More Room Throughout Coach program, partially offset by an increase in the
number of aircraft.
American's OPERATING EXPENSES increased 8.8 percent, or $354 million. American's
cost per ASM increased 11.7 percent to 11.21 cents, partially driven 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 5.7
percent. WAGES, SALARIES AND BENEFITS increased 7.8 percent, or $118 million,
primarily due to an increase in the average number of equivalent employees,
contractual wage rate and seniority increases that are built into the Company's
labor contracts, partially offset by a decrease in provision for profit-sharing
of approximately $30 million. AIRCRAFT FUEL expense increased 23.3 percent, or
$123 million, due to a 21.5 percent increase in the Company's average price per
gallon and a 1.8 percent increase in the Company's fuel consumption. The
increase in fuel expense is net of gains of approximately $44 million recognized
during the first quarter of 2001 related to the Company's fuel hedging program.
COMMISSIONS TO AGENTS decreased 12.4 percent, or $30 million, despite an
increase of approximately 4.3 percent in passenger revenues, due primarily to
the continued benefit from commission structure changes implemented in 2000 and
a decrease in the percentage of commissionable transactions. Other operating
expense increased 12.6 percent, or $90 million, due primarily to increases in
external contract maintenance, outsourced services, data processing, and travel
and incidental costs.
INTEREST INCOME decreased $8 million, or 26.7 percent, due primarily to lower
investment balances. RELATED PARTY INTEREST - NET decreased $16 million due to
affiliate intercompany payable balances of American. During the first quarter of
2001, the Company recorded approximately $20 million of SFAS 133 ADJUSTMENTS
relating to the Company's ineffectiveness and time-value adjustments associated
with its fuel hedging program (see Footnote 6 to the condensed consolidated
financial statements).
The effective tax rates for the three months ended March 31, 2001 and 2000 were
based upon the operating results for such periods. As such, the effective tax
rates do not represent estimated annual effective tax rates.
-8-
11
AIRCRAFT INFORMATION
As of March 31, 2001, the Company had commitments to acquire the following
aircraft: 62 Boeing 737-800s, 23 Boeing 757-200s and 16 Boeing 777-200ERs.
Deliveries of all aircraft continue through 2004. Payments for all aircraft will
approximate $1.7 billion during the remainder of 2001, $1.1 billion in 2002,
$350 million in 2003 and approximately $55 million in 2004. The Company expects
to fund its remaining 2001 capital expenditures from the Company's existing cash
and short-term investments, internally generated cash or new financing depending
upon market conditions and the Company's evolving view of its long-term needs.
OTHER INFORMATION
On January 10, 2001, the Company announced three transactions that would
substantially increase the scope of its existing network. The first of these
transactions was consummated on April 9, 2001 when the Company purchased
substantially all of the assets of Trans World Airlines, Inc. (TWA) for
approximately $625 million in cash (subject to certain working capital
adjustments), including the satisfaction of $312 million in debtor-in-possession
financing which was funded by the Company's parent (AMR), and assumed certain
liabilities. The Company funded the acquisition of TWA's assets with its
existing cash and short-term investments. The Company does not expect the
acquisition of TWA to have a significantly accretive or dilutive impact on the
Company's 2001 earnings. Although TWA has historically reported net losses and
the acquisition of TWA will result in the incurrence of integration costs, the
Company expects to realize certain synergies from the acquisition, including,
among other things, improved passenger revenues and a reduction in rental
expense from the renegotiated lease obligations.
Secondly, the Company announced that it has agreed to acquire from United
Airlines, Inc. (United) certain key strategic assets (slots, gates and aircraft)
of US Airways Group, Inc. (US Airways) upon the consummation of the previously
announced merger between United and US Airways. In addition to the acquisition
of these assets, American will lease a number of slots and gates from United so
that American may operate half of the northeast Shuttle (New York/Washington
DC/Boston). United will operate the other half of the Shuttle. For these assets,
American will pay approximately $1.2 billion in cash to United and assume
approximately $300 million in aircraft operating leases. The consummation of
these transactions is contingent upon the closing of the proposed United/US
Airways merger, which is no longer expected to occur in the second quarter of
2001. Also, the acquisition of aircraft is dependent upon certain rights of
United to exclude aircraft from the transactions and also is generally dependent
upon a certain number of US Airways' Boeing 757 cockpit crew members
transferring to American's payroll.
Finally, American has agreed to acquire a 49 percent stake in, and to enter
into an exclusive marketing agreement with, D.C. Air, LLC (DC Air). American has
agreed to pay $82 million in cash for its ownership stake. American will have a
right of first refusal on the acquisition of the remaining 51 percent stake in
DC Air. American will also lease to DC Air a certain number of Fokker 100
aircraft with necessary crews (known in the industry as a "wet lease"). These
wet leased aircraft will be used by DC Air in its operations. DC Air is the
first significant new entrant at Ronald Reagan Washington National Airport (DCA)
in over a decade. DC Air will acquire the assets needed to begin its DCA
operations from United/US Airways upon the consummation of the merger between
the two carriers. American's investment in DC Air and the other arrangements
described above are contingent upon the consummation of the merger between
United and US Airways and upon execution of definitive documentation between DC
Air and United (which has not yet occurred).
As a result of the above transactions, and for several other reasons, the
Company has initiated an impairment review of certain fleet types in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This review, which is expected to be completed during the second quarter of
2001, could result in an impairment charge to be taken by the Company. The size
of any resulting 2001 charge is not presently known, but may be significant.
-9-
12
FORWARD-LOOKING INFORMATION
Statements in this report contain various forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which represent the
Company's expectations or beliefs concerning future events. When used in this
report, the words "expects," "plans," "anticipates," and similar expressions are
intended to identify forward-looking statements. All forward-looking statements
in this report are based upon information available to the Company on the date
of this report. The Company undertakes no obligation to publicly update or
revise any forward- looking statement, whether as a result of new information,
future events or otherwise. Forward-looking statements are subject to a number
of factors that could cause actual results to differ materially from our
expectations. Additional information concerning these and other factors is
contained in the Company's Securities and Exchange Commission filings, included
but not limited to the Form 10-K for the year ended December 31, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the information provided
in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of the
Company's Annual Report on Form 10-K for the year ended December 31, 2000,
except as discussed below.
Based on projected fuel usage for the next twelve months, including the
Company's estimated fuel consumption for TWA based upon TWA's actual average
consumption for the twelve months ended September 30, 2000, a hypothetical 10
percent increase in the March 31, 2001 cost per gallon of fuel would result in
an increase to the Company's aircraft fuel expense of approximately $196 million
for the next twelve months, net of fuel hedge instruments outstanding at March
31, 2001. The change in market risk from December 31, 2000 is due primarily to
the estimated fuel consumption of TWA, partially offset by a decrease in fuel
prices. As of March 31, 2001, the Company, including the estimated fuel
consumption of TWA, has hedged approximately 40 percent of its remaining 2001
fuel requirements, 22 percent of its 2002 fuel requirements, and approximately
11 percent of its 2003 fuel requirements.
-10-
13
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In connection with its frequent flyer program, American was sued in several
purported class action cases currently pending in the Circuit Court of Cook
County, Illinois. In Wolens et al. v. American Airlines, Inc. and Tucker v.
American Airlines, Inc. (hereafter, "Wolens"), plaintiffs seek money damages and
attorneys' fees claiming that a change made to American's AAdvantage program in
May 1988, which limited the number of seats available to participants traveling
on certain awards, breached American's agreement with its AAdvantage members.
(Although the Wolens complaint originally asserted several state law claims,
only the plaintiffs' breach of contract claim remains after the U.S. Supreme
Court ruled that the Airline Deregulation Act preempted the other claims). In
Gutterman et al. v. American Airlines, Inc. (hereafter, "Gutterman"), plaintiffs
also seek money damages and attorneys' fees claiming that the February 1995
increase in the award mileage required to claim a certain AAdvantage travel
award breached the agreement between American and its AAdvantage members. On
June 23, 1998, the court certified the Gutterman case as a class action.
In February 2000, American and the Wolens and Gutterman plaintiffs reached
a settlement of both lawsuits. Pursuant to the agreement, American and the
plaintiffs agreed to ask the court to consolidate the Wolens and Gutterman
lawsuits for purposes of settlement. Further, American and the Wolens plaintiffs
agreed to ask the court to certify a Wolens class of AAdvantage members who had
at least 35,000 unredeemed AAdvantage miles as of December 31, 1988. In
addition, American and the Gutterman plaintiffs agreed to ask the court to
decertify the existing Gutterman class and to certify a new Gutterman class of
AAdvantage members who as of December 31, 1993 (a) had redeemed 25,000 or 50,000
AAdvantage miles for certain AAdvantage awards and/or (b) had between 4,700 and
24,999 unredeemed miles in his or her account that were earned in 1992 or 1993.
Depending upon certain factors, Wolens and Gutterman class members will be
entitled to receive certificates entitling them to mileage off certain
AAdvantage awards or dollars off certain American fares.
As part of the settlement, American agreed to pay the Wolens and Gutterman
plaintiffs' attorneys fees and the cost of administering the settlement, which
amounts were accrued as of December 31, 1999. In consideration for the relief
provided in the settlement agreement, Wolens and Gutterman class members will
release American from all claims arising from any changes that American has made
to the AAdvantage program and reaffirming American's right to make changes to
the AAdvantage program in the future. On May 2, 2000, the court preliminarily
approved the settlement and authorized sending notice of the settlement to class
members. On September 28, 2000 and February 23, 2001, the court has held several
hearings on the fairness of the settlement and the request for fees by the
plaintiffs' attorneys. The court has not yet ruled on these issues.
On July 26, 1999, a class action lawsuit was filed, and in November 1999 an
amended complaint was filed, against AMR Corporation, American Airlines, Inc.,
AMR Eagle Holding Corporation, Airlines Reporting Corporation, and the Sabre
Group Holdings, Inc. in the United States District Court for the Central
District of California, Western Division (Westways World Travel, Inc. v. AMR
Corp., et al.). The lawsuit alleges that requiring travel agencies to pay debit
memos to American for violations of American's fare rules (by customers of the
agencies) (1) breaches the Agent Reporting Agreement between American and
American Eagle and plaintiffs, (2) constitutes unjust enrichment, and (3)
violates the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO).
The as yet uncertified class includes all travel agencies who have been or will
be required to pay monies to American for debit memos for fare rules violations
from July 26, 1995 to the present. Plaintiffs seek to enjoin American from
enforcing the pricing rules in question and to recover the amounts paid for
debit memos, plus treble damages, attorneys' fees, and costs. Defendants' motion
to dismiss all claims is pending. American intends to vigorously defend the
lawsuit. Although the Company believes that the litigation is without merit,
adverse court decisions could impose restrictions on American's ability to
respond to competitors, and American's business may be adversely impacted.
-11-
14
PART II
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
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. The case has been
set for trial on May 22, 2001. 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.
On March 1, 2000, American was served with a federal grand jury subpoena
calling for American to produce documents relating to de-icing operations at DFW
since 1992. American has produced documents to the grand jury, but is not able
at this time to determine either the full scope of the grand jury's
investigation or American's role in the investigation. American intends to
cooperate fully with the government's investigation.
-12-
15
PART II
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 months
ended March 31, 2001 and 2000.
Form 8-Ks filed under Item 5 -- Other Events
On January 10, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to a press release issued to announce that American Airlines, Inc. had
agreed (i) to purchase substantially all of the assets of Trans World Airlines,
Inc., (ii) to acquire certain key strategic US Airways, Inc. assets, and (iii)
to acquire a 49 percent stake in, and to enter into an exclusive marketing
agreement with, DC Air.
On January 17, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to a press release issued by its parent company, AMR Corporation,
report the AMR's fourth quarter and full year 2000 earnings.
On March 8, 2001, American Airlines, Inc. filed a report on Form 8-K to
announce that on March 7, 2001, American Airlines, Inc. increased its $500
million cash offer for certain assets of Trans World Airlines, Inc.
On March 13, 2001, American Airlines, Inc. filed a report on Form 8-K
relative to a press release issued to announce the acceptance of American
Airlines, Inc. bid for Trans World Airways, Inc.
-13-
16
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: April 23, 2001 BY: /s/ Thomas W. Horton
----------------------------------------
Thomas W. Horton
Senior Vice President - Finance and
Planning and Chief Financial Officer
-14-
17
INDEX TO EXHIBITS
EXHIBITS
NUMBER DESCRIPTION
- -------- -----------
12 Computation of ratio of earnings to fixed charges for the
three months ended March 31, 2001 and 2000.