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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A NO. 1
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002.
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[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period From to .
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Commission file number 1-8400.
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AMR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 75-1825172
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
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Not Applicable
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(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 - 155,688,619 as of July 15, 2002.
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EXPLANATORY NOTE
AMR CORPORATION
The purpose of this amendment No. 1 to the AMR Corporation Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2002 is to solely reflect a
cumulative effect of accounting change, as a result of the adoption of Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets", effective January 1, 2002. This new accounting pronouncement allows
companies until December 31, 2002 to quantify the impairment charge, if any, but
requires companies to record this charge effective January 1, 2002, resulting in
this amended Form 10-Q.
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and six months ended June
30, 2002 and 2001
Condensed Consolidated Balance Sheets - June 30, 2002 and December 31, 2001
Condensed Consolidated Statements of Cash Flows -- Six months ended June
30, 2002 and 2001
Notes to Condensed Consolidated Financial Statements - June 30, 2002
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
CERTIFICATIONS
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
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Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
REVENUES
Passenger - American Airlines $ 3,747 $ 4,645 $ 7,231 $ 8,580
- AMR Eagle 344 409 649 763
Cargo 142 190 276 366
Other revenues 246 339 459 634
-------- -------- -------- --------
Total operating revenues 4,479 5,583 8,615 10,343
EXPENSES
Wages, salaries and benefits 2,126 2,126 4,206 3,872
Aircraft fuel 656 842 1,183 1,549
Depreciation and amortization 338 352 679 665
Other rentals and landing fees 306 320 595 577
Maintenance, materials and repairs 285 298 551 578
Aircraft rentals 214 226 440 374
Food service 180 218 350 402
Commissions to agents 155 260 316 484
Special charges -- 685 -- 685
Other operating expenses 820 1,016 1,625 1,921
-------- -------- -------- --------
Total operating expenses 5,080 6,343 9,945 11,107
-------- -------- -------- --------
OPERATING LOSS (601) (760) (1,330) (764)
OTHER INCOME (EXPENSE)
Interest income 18 24 36 64
Interest expense (164) (132) (330) (251)
Interest capitalized 22 38 44 79
Miscellaneous - net 5 37 (3) 22
-------- -------- -------- --------
(119) (33) (253) (86)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (720) (793) (1,583) (850)
Income tax benefit (225) (286) (513) (300)
-------- -------- -------- --------
LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (495) (507) (1,070) (550)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX
BENEFIT -- -- (988) --
-------- -------- -------- --------
NET LOSS $ (495) $ (507) $ (2,058) $ (550)
======== ======== ======== ========
BASIC AND DILUTED LOSS PER SHARE
Before Cumulative Effect of Accounting Change $ (3.19) $ (3.29) $ (6.90) $ (3.58)
Cumulative Effect of Accounting Change -- -- (6.37) --
-------- -------- -------- --------
Net Loss $ (3.19) $ (3.29) $ (13.27) $ (3.58)
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
-1-
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
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June 30, December 31,
2002 2001
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ASSETS
CURRENT ASSETS
Cash $ 195 $ 120
Short-term investments 2,368 2,872
Receivables, net 1,556 1,414
Inventories, net 743 822
Deferred income taxes 792 790
Other current assets 194 522
-------- --------
Total current assets 5,848 6,540
EQUIPMENT AND PROPERTY
Flight equipment, net 15,556 14,980
Other equipment and property, net 2,317 2,079
Purchase deposits for flight equipment 686 929
-------- --------
18,559 17,988
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment, net 1,433 1,572
Other equipment and property, net 92 95
-------- --------
1,525 1,667
Route acquisition costs 829 829
Airport operating and gate lease rights, net 481 496
Other assets 4,296 5,321
-------- --------
$ 31,538 $ 32,841
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,559 $ 1,785
Accrued liabilities 2,344 2,192
Air traffic liability 3,059 2,763
Current maturities of long-term debt 350 556
Current obligations under capital leases 147 216
-------- --------
Total current liabilities 7,459 7,512
Long-term debt, less current maturities 9,172 8,310
Obligations under capital leases, less current obligations 1,444 1,524
Deferred income taxes 1,577 1,627
Postretirement benefits 2,611 2,538
Other liabilities, deferred gains and deferred credits 5,868 5,957
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock 182 182
Additional paid-in capital 2,812 2,865
Treasury stock (1,645) (1,716)
Accumulated other comprehensive loss (72) (146)
Retained earnings 2,130 4,188
-------- --------
3,407 5,373
-------- --------
$ 31,538 $ 32,841
======== ========
The accompanying notes are an integral part of these financial statements.
-2-
AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
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Six Months Ended June 30,
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2002 2001
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 86 $ 885
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, including purchase deposits for flight equipment (1,113) (2,124)
Acquisition of Trans World Airlines, Inc. -- (742)
Net decrease in short-term investments 504 922
Proceeds from sale of equipment and property 162 206
Other 35 (6)
------- -------
Net cash used for investing activities (412) (1,744)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (468) (586)
Proceeds from:
Issuance of long-term debt 866 1,587
Exercise of stock options 3 34
------- -------
Net cash provided by financing activities 401 1,035
------- -------
Net increase in cash 75 176
Cash at beginning of period 120 89
------- -------
Cash at end of period $ 195 $ 265
======= =======
The accompanying notes are an integral part of these financial statements.
-3-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and 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 and the asset impairment charge as discussed in footnote
8, necessary to present fairly the financial position, results of
operations and cash flows for the periods indicated. The Company's 2002
results continue to be adversely impacted by the September 11, 2001
terrorist attacks and the resulting effect on the economy and the air
transportation industry. In addition, on April 9, 2001, Trans World
Airlines LLC (TWA LLC, a wholly owned subsidiary of AMR Corporation)
purchased substantially all of the assets and assumed certain liabilities
of Trans World Airlines, Inc. (TWA). Accordingly, the operating results of
TWA LLC are included in the accompanying condensed consolidated financial
statements for the three and six month periods ended June 30, 2002 whereas
for 2001 the results of TWA LLC were included only for the period April 10,
2001 through June 30, 2001. When utilized in this report, all references to
American Airlines, Inc. include the operations of TWA LLC since April 10,
2001 (collectively, American). Results of operations for the periods
presented herein are not necessarily indicative of results of operations
for the entire year. 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, 2001 ("2001 Form 10-K").
2. Accumulated depreciation of owned equipment and property at June 30, 2002
and December 31, 2001 was $9 billion and $8.9 billion, respectively.
Accumulated amortization of equipment and property under capital leases at
June 30, 2002 and December 31, 2001 was approximately $1.1 billion and $1.2
billion, respectively.
3. The following table provides unaudited pro forma consolidated results of
operations, assuming the acquisition of TWA had occurred as of January 1,
2001 (in millions, except per share amounts):
Six Months Ended
June 30, 2001
----------------
Operating revenues $ 11,210
Net loss (557)
Loss per share $ (3.62)
The unaudited pro forma consolidated results of operations have been
prepared for comparative purposes only. These amounts are not indicative of
the combined results that 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.
4. As discussed in the notes to the consolidated financial statements included
in the Company's 2001 Form 10-K, Miami-Dade County (the County) is
currently investigating and remediating various environmental conditions at
the Miami International Airport (MIA) and funding the remediation costs
through landing fees and various cost recovery methods. American and AMR
Eagle have been named as potentially responsible parties (PRPs) for the
contamination at MIA. During the second quarter of 2001, the County 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's
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.
-4-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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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 June 30, 2002, the Company had commitments to acquire the following
aircraft: 47 Boeing 737-800s, 11 Boeing 777-200ERs, nine Boeing 767-300ERs,
109 Embraer regional jets and 20 Bombardier CRJ-700s. Deliveries of these
aircraft are scheduled to continue through 2008. Payments for these
aircraft are expected to be approximately $505 million during the remainder
of 2002, $1.5 billion in 2003, $1.1 billion in 2004 and an aggregate of
approximately $2.1 billion in 2005 through 2008.
6. During the six month period ended June 30, 2002, American and AMR Eagle
borrowed approximately $626 million under various debt agreements which are
secured by aircraft. Effective interest rates on these agreements are based
on London Interbank Offered Rate plus a spread and mature over various
periods of time through 2018.
In March 2002, the Regional Airports Improvement Corporation issued
facilities sublease revenue bonds at the Los Angeles International Airport
to provide reimbursement to American for certain facility construction
costs. The proceeds of approximately $225 million provided to American have
been recorded as long-term debt on the condensed consolidated balance
sheets. These obligations bear interest at fixed rates, with an average
rate of 7.88 percent, and mature over various periods of time, with a final
maturity in 2024.
7. Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS
142). SFAS 142 requires the Company to test goodwill and indefinite-lived
intangible assets (for AMR, route acquisition costs) for impairment rather
than amortize them. During the first quarter of 2002, the Company completed
its impairment analysis for route acquisition costs in accordance with SFAS
142. The analysis did not result in an impairment charge. In addition, the
Company completed its impairment analysis related to its $1.4 billion of
goodwill and determined the Company's entire goodwill balance was impaired.
In arriving at this conclusion, the Company's net book value was determined
to be in excess of the Company's fair value at January 1, 2002, using AMR
as the reporting unit for purposes of the fair value determination. The
Company determined its fair value as of January 1, 2002 using various
valuation methods, ultimately utilizing market capitalization as the
primary indicator of fair value. As a result, the Company recorded a
one-time, non-cash charge, effective January 1, 2002, of $988 million
($6.37 per share, net of a tax benefit of $363 million) to write-off all of
AMR's goodwill. This charge is nonoperational in nature and is reflected as
a cumulative effect of accounting change in the consolidated statements of
operations. This charge does not affect the Company's financial covenants
in any of its credit agreements.
In addition, 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
required the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges are 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 are either 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 is 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 in
Accumulated other comprehensive loss in the first quarter of 2001.
-5-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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The following table provides information relating to the Company's
amortized intangible assets as of June 30, 2002 (in millions):
Accumulated Net Book
Cost Amortization Value
---- ------------ --------
AMORTIZED INTANGIBLE ASSETS:
Airport operating rights $516 $168 $348
Gate lease rights 209 76 133
---- ---- ----
Total $725 $244 $481
==== ==== ====
Airport operating and gate lease rights are being amortized on a
straight-line basis over 25 years to a zero residual value. For the three
and six month period ended June 30, 2002, the Company recorded amortization
expense of approximately $6 million and $15 million, respectively, related
to these intangible assets. The Company expects to record annual
amortization expense of approximately $29 million in each of the next five
years related to these intangible assets.
The pro forma effect of discontinuing amortization of goodwill and route
acquisition costs under SFAS 142 - assuming the Company had adopted this
standard as of January 1, 2001 - results in an adjusted net loss of
approximately $494 million, or $3.21 per share, and approximately $530
million, or $3.45 per share, respectively, for the three and six month
periods ended June 30, 2001.
8. In conjunction with the acquisition of certain assets from TWA, coupled
with revisions to the Company's fleet plan to accelerate the retirement
dates of its Fokker 100, Saab 340 and ATR 42 aircraft, during the second
quarter of 2001 the Company determined 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 which is included in Special charges on the accompanying
consolidated statements of operations. Management estimated 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 will decrease by approximately $18 million on
an annualized basis.
9. 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 that qualify for hedge
accounting in comprehensive loss. For the three months ended June 30, 2002
and 2001, comprehensive loss was $496 million and $511 million,
respectively. In addition, for the six months ended June 30, 2002 and 2001,
comprehensive loss was $1,984 million and $480 million, respectively. The
difference between net loss and comprehensive loss is due primarily to the
accounting for the Company's derivative financial instruments under SFAS
133. In addition, the six month period ended June 30, 2001 includes the
cumulative effect of the adoption of SFAS 133.
During the second quarter of 2002, the Company discontinued entering into
new foreign exchange currency put option agreements. The fair value of the
Company's remaining foreign currency put option agreements was not material
as of June 30, 2002, and all of these agreements will expire by September
30, 2002.
-6-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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10. The following table sets forth the computations of basic and diluted loss
per share before cumulative effect of accounting change (in millions,
except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2002 2001 2002 2001
------- ------- ------- -------
NUMERATOR:
Net loss before cumulative effect of accounting change - numerator for basic
and diluted loss per share $ (495) $ (507) $(1,070) $ (550)
======= ======= ======= =======
DENOMINATOR:
Denominator for basic and diluted loss per share before cumulative effect of
accounting change - weighted-average shares 155 154 155 154
======= ======= ======= =======
Basic and diluted loss per share before cumulative effect of accounting change $ (3.19) $ (3.29) $ (6.90) $ (3.58)
======= ======= ======= =======
For the three and six months ended June 30, 2002, approximately five
million and seven million potential dilutive shares, respectively, were not
added to the denominator because inclusion of such shares would be
antidilutive as compared to approximately 14 million shares for the three
and six months ended June 30, 2001.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
SUMMARY AMR Corporation's (AMR or the Company) NET LOSS during the second
quarter of 2002 was $495 million, or $3.19 per share, as compared to a net loss
of $507 million, or $3.29 per share for the same period in 2001. AMR's OPERATING
LOSS of $601 million decreased by $159 million compared to the same period in
2001. The Company's 2002 results continue to be adversely impacted by the
September 11, 2001 terrorist attacks and the resulting effect on the economy and
the air transportation industry. On April 9, 2001, Trans World Airlines LLC (TWA
LLC, a wholly owned subsidiary of AMR) purchased substantially all of the assets
and assumed certain liabilities of Trans World Airlines, Inc. (TWA).
Accordingly, the operating results of TWA LLC are included in the accompanying
condensed consolidated financial statements for the three month period ended
June 30, 2002 whereas for 2001 the results of TWA LLC were included only for the
period April 10, 2001 through June 30, 2001. All references to American
Airlines, Inc. include the operations of TWA LLC since April 10, 2001
(collectively, American). AMR's second quarter 2001 results include: (i) a $685
million charge ($430 million after-tax, or $2.79 per share) related to the
writedown of the carrying value of its Fokker 100, Saab 340 and ATR-42 aircraft
and related rotables in accordance with SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (see footnote
8 to the condensed consolidated financial statements), and (ii) a $45 million
gain ($29 million after-tax, or $0.19 per share) from the settlement of a legal
matter related to the Company's 1999 labor disruption.
Although traffic has continued to increase on significantly reduced capacity
since the events of September 11, 2001, the Company's second quarter 2002
revenues were down significantly quarter-over-quarter. In addition to the
residual effects of September 11, the Company's revenues continue to be
negatively impacted by the economic slowdown, seen largely in business travel
declines, the geographic distribution of the Company's network and reduced
fares. In total, the Company's REVENUES decreased $1,104 million, or 19.8
percent, in the second quarter of 2002 as compared to the same period last year.
American's PASSENGER REVENUES decreased by 19.3 percent, or $898 million in the
second quarter of 2002 from the same period in 2001. American's domestic revenue
per available seat mile (RASM) decreased 11.9 percent, to 8.47 cents, on a
capacity decrease of 8 percent, to 32 billion available seat miles (ASMs).
International RASM decreased to 8.67 cents, or 5 percent, on a capacity decrease
of 16.2 percent. The decrease in international RASM was due to an 8.6 percent
and 3.1 percent decrease in Latin American and European RASM, respectively,
slightly offset by a 3.2 percent increase in Pacific RASM. The decrease in
international capacity was driven by a 33.9 percent, 16.2 percent and 12.3
percent reduction in Pacific, European and Latin American ASMs, respectively.
AMR Eagle's PASSENGER REVENUES decreased 15.9 percent, or $65 million. AMR
Eagle's traffic increased 2.8 percent while capacity decreased 5 percent, to
approximately 1.6 billion ASMs. As with American, the decrease in AMR Eagle's
revenues was due primarily to the continued impact of the September 11, 2001
terrorist attacks and the economic slowdown.
Cargo REVENUES decreased $48 million, or 25.3 percent, primarily due to the same
reasons as noted above.
OTHER REVENUES decreased 27.4 percent, or $93 million, due primarily to
decreases in contract maintenance work that American performs for other
airlines, and decreases in codeshare revenue and employee travel service
charges.
-8-
RESULTS OF OPERATIONS (CONTINUED)
The Company's OPERATING EXPENSES decreased 19.9 percent, or $1,263 million.
American's COST PER ASM increased 0.5 percent to 10.78 cents, excluding the
impact of the second quarter 2001 asset impairment charge. WAGES, SALARIES AND
BENEFITS remained flat quarter-over-quarter, reflecting (i) a decrease in the
average number of equivalent employees, somewhat offset by higher salaries, and
(ii) increases in the Company's pension and health insurance costs, the latter
reflecting rapidly rising medical care and prescription drug costs. AIRCRAFT
FUEL expense decreased 22.1 percent, or $186 million, due primarily to an 11.6
percent decrease in the Company's fuel consumption and a 9.4 percent decrease in
the Company's average price per gallon of fuel. FOOD SERVICE decreased 17.4
percent, or $38 million, due primarily to the Company's reduced operating
schedule and change in level of food service. COMMISSIONS TO AGENTS decreased
40.4 percent, or $105 million, due primarily to a 19.1 percent decrease in
passenger revenues and commission structure changes implemented in March 2002.
SPECIAL CHARGES of $685 million related to the writedown of the carrying value
of the Company's Fokker 100, Saab 340 and ATR-42 aircraft and related rotables
during the second quarter of 2001 (see footnote 8 to the condensed consolidated
financial statements). OTHER OPERATING EXPENSES decreased 19.3 percent, or $196
million, due primarily to decreases in contract maintenance work that American
performs for other airlines, and decreases in travel and incidental costs,
credit card and booking fees, advertising and promotion costs, and data
processing expenses, which were partially offset by higher insurance and
security costs.
OTHER INCOME (EXPENSE) increased $86 million due to the following: INTEREST
INCOME decreased 25 percent, or $6 million, due primarily to decreases in
interest rates. INTEREST EXPENSE increased $32 million, or 24.2 percent,
resulting primarily from the increase in the Company's long-term debt. INTEREST
CAPITALIZED decreased $16 million, or 42.1 percent, due primarily to a decrease
in purchase deposits for flight equipment. MISCELLANEOUS-NET decreased 86.5
percent, or $32 million, due primarily to a $45 million gain recorded during the
second quarter of 2001 from the settlement of a legal matter related to the
Company's 1999 labor disruption.
The effective tax rate for the three months ended June 30, 2002 was impacted by
a $30 million charge resulting from a provision in Congress' economic stimulus
package that changes the period for carrybacks of net operating losses (NOLs).
This change allows the Company to carry back 2001 and 2002 NOLs for five years,
rather than two years under the existing law, allowing the Company to more
quickly recover its NOLs. The extended NOL carryback did however, result in the
displacement of foreign tax credits taken in prior years. These credits are now
expected to expire before being utilized by the Company, resulting in this
charge.
-9-
RESULTS OF OPERATIONS (CONTINUED)
OPERATING STATISTICS Three Months Ended June 30,
---------------------------
2002 2001
------ ------
AMERICAN AIRLINES
Revenue passenger miles (millions) 31,379 35,188
Available seat miles (millions) 43,958 49,044
Cargo ton miles (millions) 518 610
Passenger load factor 71.4% 71.7%
Breakeven load factor (*) 86.4% 74.0%
Passenger revenue yield per passenger mile (cents) 11.94 13.20
Passenger revenue per available seat mile (cents) 8.52 9.47
Cargo revenue yield per ton mile (cents) 27.21 30.89
Operating expenses per available seat mile (cents) (*) 10.78 10.73
Fuel consumption (gallons, in millions) 808 922
Fuel price per gallon (cents) 75.5 83.3
Fuel price per gallon, excluding fuel taxes (cents) 70.0 78.0
Operating aircraft at period-end 828 904
AMR EAGLE
Revenue passenger miles (millions) 1,059 1,030
Available seat miles (millions) 1,596 1,680
Passenger load factor 66.4% 61.3%
Operating aircraft at period-end 281 271
(*) Excludes the impact of Special charges
Operating aircraft at June 30, 2002, included:
AMERICAN AIRLINES AIRCRAFT AMR EAGLE AIRCRAFT
Airbus A300-600R 34 ATR 42 28
Boeing 737-800 77 Bombardier CRJ-700 5
Boeing 757-200 151 Embraer 135 40
Boeing 767-200 8 Embraer 140 30
Boeing 767-200 Extended Range 21 Embraer 145 56
Boeing 767-300 Extended Range 58 Super ATR 42
Boeing 777-200 Extended Range 43 Saab 340B 55
Fokker 100 74 Saab 340B Plus 25
McDonnell Douglas MD-80 362 ---
--- Total 281
Total 828 ===
===
The average aircraft age for American's aircraft is 10 years and 6.6 years for
AMR Eagle aircraft.
In addition, the following owned and leased aircraft were not operated by the
Company as of June 30, 2002: 29 owned Boeing 727-200s, 24 operating leased
Boeing 717-200s, 13 operating leased McDonnell Douglas DC-9s, eight owned
McDonnell Douglas DC-10-10s, four operating leased McDonnell Douglas MD-80s, and
15 capital leased and two owned Saab 340Bs.
-10-
RESULTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
SUMMARY AMR's LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE for the six
months ended June 30, 2002 was $1,070 million, or $6.90 per share, as compared
to a net loss of $550 million, or $3.58 per share, for the same period in 2001.
AMR's OPERATING LOSS for the six months ended June 30, 2002 was $1,330 million,
compared to an operating loss of $764 million for the same period in 2001. The
Company's 2002 results continue to be adversely impacted by the September 11,
2001 terrorist attacks and the resulting effect on the economy and the air
transportation industry. On April 9, 2001, TWA LLC purchased substantially all
of the assets and assumed certain liabilities of TWA. Accordingly, the operating
results of TWA LLC are included in the accompanying condensed consolidated
financial statements for the six month period ended June 30, 2002 whereas for
2001 the results of TWA LLC were included only for the period April 10, 2001
through June 30, 2001. In addition, the Company recorded a one-time, non-cash
charge of $988 million (net of tax), reflected as a cumulative effect of
accounting change, to write-off all of AMR's goodwill. AMR's 2001 results
include: (i) a $685 million charge ($430 million after-tax, or $2.79 per share)
related to the writedown of the carrying value of its Fokker 100, Saab 340 and
ATR-42 aircraft and related rotables, and (ii) a $45 million gain ($29 million
after-tax, or $0.19 per share) from the settlement of a legal matter related to
the Company's 1999 labor disruption.
Although traffic has continued to increase on significantly reduced capacity
since the events of September 11, 2001, the Company's 2002 revenues were down
significantly year-over-year. In addition to the residual effects of September
11, the Company's revenues continue to be negatively impacted by the economic
slowdown, seen largely in business travel declines, the geographic distribution
of the Company's network and reduced fares. In total, the Company's REVENUES
decreased $1,728 million, or 16.7 percent, in 2002 versus the same period in
2001. American's PASSENGER REVENUES decreased by 15.7 percent, or $1,349 million
in 2002 as compared to the same period in 2001. American's domestic RASM
decreased 13.4 percent, to 8.58 cents, on a capacity decrease of 0.4 percent, to
61.3 billion ASMs. International RASM decreased to 8.67 cents, or 7.7 percent,
on a capacity decrease of 14 percent. The decrease in international RASM was due
to a 10.2 percent and 7.9 percent decrease in Latin American and European RASM,
respectively, slightly offset by a 5.6 percent increase in Pacific RASM. The
decrease in international capacity was driven by a 36.4 percent, 15.2 percent
and 8.2 percent reduction in Pacific, European and Latin American ASMs,
respectively.
AMR Eagle's PASSENGER REVENUES decreased 14.9 percent, or $114 million. AMR
Eagle's traffic increased 4.7 percent while capacity decreased 3.2 percent, to
approximately 3.2 billion ASMs. As with American, the decrease in AMR Eagle's
revenues was due primarily to the continued impact of the September 11, 2001
terrorist attacks and the economic slowdown.
Cargo REVENUES decreased $90 million, or 24.6 percent, primarily due to the same
reasons as noted above.
OTHER REVENUES decreased 27.6 percent, or $175 million, due primarily to
decreases in contract maintenance work that American performs for other
airlines, and decreases in codeshare revenue and employee travel service
charges.
-11-
RESULTS OF OPERATIONS (CONTINUED)
The Company's OPERATING EXPENSES decreased 10.5 percent, or approximately $1,162
million. American's COST PER ASM increased by 0.5 percent to 11.03 cents,
excluding the impact of the second quarter 2001 asset impairment charge. WAGES,
SALARIES AND BENEFITS increased 8.6 percent, or $334 million, reflecting (i) a
decrease in the average number of equivalent employees, somewhat offset by
higher salaries, and (ii) increases in the Company's pension and health
insurance costs, the latter reflecting rapidly rising medical care and
prescription drug costs. AIRCRAFT FUEL expense decreased 23.6 percent, or $366
million, due primarily to a 16.1 percent decrease in the Company's average price
per gallon of fuel and a 6.1 percent decrease in the Company's fuel consumption.
AIRCRAFT RENTALS increased $66 million, or 17.6 percent, due primarily the
addition of TWA aircraft. FOOD SERVICE decreased 12.9 percent, or $52 million,
due primarily to the Company's reduced operating schedule and change in level of
food service. COMMISSIONS TO AGENTS decreased 34.7 percent, or $168 million, due
primarily to a 15.7 percent decrease in passenger revenues and commission
structure changes implemented in March 2002. SPECIAL CHARGES of $685 million
related to the writedown of the carrying value of the Company's Fokker 100, Saab
340 and ATR-42 aircraft and related rotables during the second quarter of 2001.
OTHER OPERATING EXPENSES decreased 15.4 percent, or $296 million, due primarily
to decreases in contract maintenance work that American performs for other
airlines, and decreases in travel and incidental costs, credit card and booking
fees, advertising and promotion costs, and data processing expenses, which were
partially offset by higher insurance and security costs.
OTHER INCOME (EXPENSE) increased $167 million due to the following: INTEREST
INCOME decreased 43.8 percent, or $28 million, due primarily to decreases in
interest rates. INTEREST EXPENSE increased $79 million, or 31.5 percent,
resulting primarily from the increase in the Company's long-term debt. INTEREST
CAPITALIZED decreased $35 million, or 44.3 percent, due primarily to a decrease
in purchase deposits for flight equipment. MISCELLANEOUS-NET decreased $25
million due primarily to a $45 million gain recorded during the second quarter
of 2001 from the settlement of a legal matter related to the Company's 1999
labor disruption and the write-down of certain investments held by the Company
during the first quarter of 2001.
The effective tax rate for the six months ended June 30, 2002 was impacted by a
$57 million charge resulting from a provision in Congress' economic stimulus
package that changes the period for carrybacks of NOLs. This change allows the
Company to carry back 2001 and 2002 NOLs for five years, rather than two years
under the existing law, allowing the Company to more quickly recover its NOLs.
The extended NOL carryback did however, result in the displacement of foreign
tax credits taken in prior years. These credits are now expected to expire
before being utilized by the Company, resulting in this charge.
-12-
RESULTS OF OPERATIONS (CONTINUED)
OPERATING STATISTICS Six Months Ended June 30,
-------------------------
2002 2001
------ ------
AMERICAN AIRLINES
Revenue passenger miles (millions) 59,197 61,640
Available seat miles (millions) 84,047 88,021
Cargo ton miles (millions) 981 1,159
Passenger load factor 70.4% 70.0%
Breakeven load factor (*) 86.9% 71.3%
Passenger revenue yield per passenger mile (cents) 12.22 13.92
Passenger revenue per available seat mile (cents) 8.60 9.75
Cargo revenue yield per ton mile (cents) 27.93 31.27
Operating expenses per available seat mile (cents) (*) 11.03 10.97
Fuel consumption (gallons, in millions) 1,553 1,664
Fuel price per gallon (cents) 71.5 85.2
Fuel price per gallon, excluding fuel taxes (cents) 66.0 79.8
AMR EAGLE
Revenue passenger miles (millions) 1,978 1,890
Available seat miles (millions) 3,163 3,268
Passenger load factor 62.5% 57.8%
(*) Excludes the impact of Special charges
LIQUIDITY AND CAPITAL RESOURCES
NET CASH PROVIDED BY OPERATING ACTIVITIES in the six month period ended June 30,
2002 was $86 million, a decrease of $799 million over the same period in 2001,
due primarily to an increase in the Company's net loss. Included in net cash
provided by operating activities during the first six months of 2002 was
approximately $658 million received by the Company as a result of the
utilization of its 2001 NOL's. Capital expenditures for the first six months of
2002 were $1,113 million, and included the acquisition of seven Boeing 757-200s,
three Boeing 777-200ERs, 15 Embraer 140s and four Bombardier CRJ-700 aircraft.
These capital expenditures were financed primarily through secured mortgage and
debt agreements. Proceeds from the sale of equipment and property of $162
million include the proceeds received upon delivery of three McDonnell Douglas
MD-11 aircraft to FedEx.
As of June 30, 2002, the Company had commitments to acquire the following
aircraft: 47 Boeing 737-800s, 11 Boeing 777-200ERs, nine Boeing 767-300ERs, 109
Embraer regional jets and 20 Bombardier CRJ-700s. Deliveries of these aircraft
are scheduled to continue through 2008. Payments for these aircraft are expected
to be approximately $505 million during the remainder of 2002, $1.5 billion in
2003, $1.1 billion in 2004 and an aggregate of approximately $2.1 billion in
2005 through 2008.
In June 2002, Standard & Poor's downgraded the credit ratings of AMR and
American, and the credit ratings of a number of other major airlines. The
long-term credit ratings of AMR and American were removed from Standard & Poor's
Credit Watch with negative implications and were given a negative outlook. Any
additional reductions in AMR's or American's credit ratings could result in
increased borrowing costs to the Company and might limit the availability of
future financing needs.
-13-
In addition to the Company's approximately $2.6 billion in cash and short-term
investments as of June 30, 2002, 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 authorized by the Air Transportation
Safety and System Stabilization Act (the Act), which is estimated to be in
excess of $40 million, (ii) additional secured aircraft debt, (iii) the
availability of the Company's $1 billion credit facility, (iv) sale-leaseback
transactions of owned property, including aircraft and real estate, (v) the
recovery of past federal income taxes paid as a result of a provision in the
recently passed economic stimulus package regarding NOL carrybacks, (vi)
tax-exempt borrowings for airport facilities, (vii) securitization of future
operating receipts, and (viii) unsecured borrowings. No assurance can be given
that any of these financing sources will be available on terms acceptable to the
Company. However, the Company believes it will meet its current financing needs.
Pursuant to the Act, the Government made available to air carriers, subject to
certain conditions, up to $10 billion in federal government guarantees of
certain loans. American did not seek such loan guarantees.
OTHER INFORMATION
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. Pursuant to
authority granted in the Act, the Government has supplemented the commercial
war-risk insurance until August 17, 2002 with a third party liability policy to
cover losses to persons other than employees or passengers for renewable 60-day
periods. In the event the insurance carriers reduce further the amount of
insurance coverage available or the Government fails to renew war-risk
insurance, the Company's operations and/or financial position, results of
operations or cash flows would be adversely impacted.
As discussed in the Company's 2001 Form 10-K, a provision in the current Allied
Pilots Association (APA) contract freezes the number of ASMs and block hours
flown on American's two letter marketing code by American's regional carrier
partners when American pilots are on furlough (the ASM cap). As AMR Eagle
continues to accept previously ordered regional jets, this ASM cap would be
reached sometime in 2002, necessitating actions to insure compliance with the
ASM cap. American is working with its regional partners to accomplish this.
Actions currently being taken and considered by AMR Eagle to reduce its capacity
are discussed in the Company's 2001 Form 10-K. In addition, American is removing
its code from flights of the AmericanConnection carriers, which are independent
carriers that provide feed to American's St. Louis hub. American believes that
the combination of these actions will enable it to comply with this ASM cap
through 2002 and for sometime beyond.
In addition, another provision in the current APA contract limits the total
number of regional jets with more than 44 seats flown under the American code by
American's regional carrier partners to 67 aircraft. Similar to the above, as
AMR Eagle continues to accept previously ordered Bombardier CRJ aircraft, this
cap would be reached in early 2003. In order to ensure American remains in
compliance with this provision, AMR Eagle has reached an agreement in principle
to dispose of 14 Embraer 145 aircraft. Ultimately, these airplanes will be
acquired by Trans States Airlines, an AmericanConnection carrier. Trans States
Airlines will operate these aircraft under its two letter airline code and
expects to deploy these aircraft at its St. Louis hub where it feeds American.
The potential transaction still requires the consent of certain third parties,
including the companies financing these aircraft, and is subject to the
negotiation of final documentation.
-14-
OUTLOOK
Capacity for American is expected to be down approximately two percent in the
third quarter of 2002 compared to last year's third quarter levels. AMR Eagle's
third quarter capacity will be down about one percent from last year's levels.
For the third quarter of 2002, the Company expects traffic to be about flat as
compared to last year's third quarter levels. Pressure to reduce costs will
continue, although the Company will continue to see higher benefit and security
costs, increased insurance premiums, and greater interest expense. However, the
Company expects to see a slight decrease in fuel prices as compared to the third
quarter of 2001 and the continued decline in commission expense due to the
commission changes implemented earlier in 2002. In total, American's unit costs,
excluding special charges, for the third quarter of 2002 are expected to be down
approximately 3.5 percent from last year's third quarter level. Notwithstanding
the expected decrease in unit costs however, given the revenue pressures seen in
the first half of the year and expected to continue into the third quarter, the
Company expects to incur a sizable loss in the third quarter and a significant
loss for 2002.
In response to these financial challenges, the Company has undertaken a
comprehensive review of its business to better align its cost structure with the
current revenue environment, aimed at improving productivity, simplifying
operations and reducing costs. The Company has begun to implement certain of
these changes, including a fleet simplification program, adjustments to its
operating schedule and increased airport automation, and will continue to refine
its business throughout the coming months.
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
document and in documents incorporated herein by reference, the words "expects,"
"plans," "anticipates," "believes," and similar expressions are intended to
identify forward-looking statements. Other forward-looking statements include
statements which do not relate solely to historical facts, such as, without
limitation, statements which discuss the possible future effects of current
known trends or uncertainties, or which indicate that the future effects of
known trends or uncertainties cannot be predicted, guaranteed or assured. 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, including but not limited to the 2001 Form 10-K.
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
2001 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
the Company's management, including the Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), of the effectiveness of the design and operation of the
Company's disclosure controls and procedures within 90 days before the filing
date of this quarterly report (October 18, 2002). Based on that evaluation, the
Company's management, including the CEO and CFO, concluded that the Company's
disclosure controls and procedures were effective. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to their evaluation.
-15-
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 AMR
Eagle and the 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. The 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. The Company
intends to vigorously defend the lawsuit. Although the Company believes that the
litigation is without merit, an adverse court decision could impose restrictions
on the Company's relationships with travel agencies which restrictions could
have an adverse impact on the Company.
On May 13, 1999, the United States (through the Antitrust Division of the
Department of Justice) sued AMR Corporation, American Airlines, Inc., and AMR
Eagle Holding Corporation in federal court in Wichita, Kansas. The lawsuit
alleges that American unlawfully monopolized or attempted to monopolize airline
passenger service to and from Dallas/Fort Worth International Airport (DFW) by
increasing service when new competitors began flying to DFW, and by matching
these new competitors' fares. The Department of Justice seeks to enjoin American
from engaging in the alleged improper conduct and to impose restraints on
American to remedy the alleged effects of its past conduct. On April 27, 2001,
the U.S. District Court for the District of Kansas granted American's motion for
summary judgment. On June 26, 2001, the U.S. Department of Justice appealed the
granting of American's motion for summary judgment. The parties have submitted
briefs to the 10th Circuit Court of Appeals, which has scheduled the case for
oral argument on September 23, 2002. The Company intends to defend the lawsuit
vigorously. A final adverse court decision imposing restrictions on the
Company's ability to respond to competitors would have an adverse impact on the
Company.
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 from 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. The Company intends to defend these lawsuits vigorously. One or
more final adverse court decisions imposing restrictions on the Company's
ability to respond to competitors or awarding substantial money damages would
have an adverse impact on the Company.
On May 17, 2002, the named plaintiffs in Hall, et al. v. United Airlines, et
al., No. 7:00 CV 123-BR(1), pending in the United States District Court for the
Eastern District of North Carolina, filed an amended complaint alleging that
between 1995 and the present, 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 named plaintiffs seek to certify a nationwide
class of travel agents, but no class has yet been certified. American is
vigorously defending the lawsuit. Trial is set for April 29, 2003. A final
adverse court decision awarding substantial money damages or placing
restrictions on the Company's commission policies or practices would have an
adverse impact on the Company.
-16-
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
On April 26, 2002, six travel agencies filed an action in the United States
District Court for the Central District of California against American, United
Air Lines, Delta Air Lines, and Orbitz, LLC, alleging that American and the
other defendants: (i) conspired to prevent travel agents from acting as
effective competitors in the distribution of airline tickets to passengers in
violation of Section 1 of the Sherman Act; and (ii) conspired to monopolize the
distribution of common carrier air travel between airports in the United States
in violation of Section 2 of the Sherman Act. The named plaintiffs seek to
certify a nationwide class of travel agents, but no class has yet been
certified. American is vigorously defending the lawsuit, which is styled Albany
Travel Co., et al. v. Orbitz, LLC, et al., No. 02-3459 (ER) (AJW)x. A final
adverse court decision awarding substantial money damages or placing
restrictions on the Company's distribution practices would have an adverse
impact on the Company.
On May 13, 2002, the named plaintiffs in Always Travel, et. al. v. Air Canada,
et. al., No. T757-027, pending in the Federal Court of Canada, Trial Division,
Montreal, filed a statement of claim alleging that between 1995 and the present,
American, the other defendant airlines, and the International Air Transport
Association conspired to reduce commissions paid to Canada-based travel agents
in violation of Section 45 of the Competition Act of Canada. The named
plaintiffs seek to certify a nationwide class of travel agents, but no class has
yet been certified. American is vigorously defending the lawsuit. A final
adverse court decision awarding substantial money damages or placing
restrictions on the Company's commission policies would have an adverse impact
on the Company.
Miami-Dade County (the County) is currently investigating and remediating
various environmental conditions at the Miami International Airport (MIA) and
funding the remediation costs through landing fees and various cost recovery
methods. American Airlines, Inc. and AMR Eagle have been named as potentially
responsible parties (PRPs) for the contamination at MIA. During the second
quarter of 2001, the County 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's 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. The Company is vigorously
defending the lawsuit.
-17-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The owners of 138,215,811 shares of common stock, or 89 percent of shares
outstanding, were represented at the annual meeting of stockholders on May 15,
2002 at the American Airlines Training & Conference Center, Flagship Auditorium,
4501 Highway 360 South, Fort Worth, Texas.
Elected as directors of the Corporation, each receiving a minimum of 135,637,573
votes were:
John W. Bachmann Ann McLaughlin Korologos
David L. Boren Michael A. Miles
Edward A. Brennan Philip J. Purcell
Donald J. Carty Joe M. Rodgers
Armando M. Codina Judith Rodin
Earl G. Graves Roger T. Staubach
Stockholders ratified the appointment of Ernst & Young LLP as independent
auditors for the Corporation for 2002. The vote was 132,769,970 in favor;
4,927,896 against; and 517,945 abstaining.
A stockholder proposal to recommend that the Company affirm its political
non-partisanship - submitted by Mrs. Evelyn Y. Davis - was defeated. The vote
was 18,069,575 in favor; 95,602,793 against; 2,449,216 abstaining; and
22,094,227 non-voting.
A stockholder proposal relating to increasing the Board of Directors
independence by nominating only independent directors to key board committees -
submitted by Mr. John Chevedden - was defeated. The vote was 11,207,257 in
favor; 102,829,057 against; 2,085,270 abstaining; and 22,094,227 non-voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
3.1 Bylaws of AMR Corporation, amended as of April 2, 2002. For document
description, see AMR Corporation Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2002, as filed on July 19, 2002.
10.1 Deferred Compensation Agreement, dated as of December 18, 2001 between
AMR and Roger T. Staubach. For document description, see AMR
Corporation Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2002, as filed on July 19, 2002.
10.2 Deferred Compensation Agreement, dated as of December 18, 2001 between
AMR and Edward A. Brennan. For document description, see AMR
Corporation Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2002, as filed on July 19, 2002.
10.3 Deferred Compensation Agreement, dated as of January 14, 2002 between
AMR and Joe M. Rodgers. For document description, see AMR Corporation
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2002, as filed on July 19, 2002.
10.4 Deferred Compensation Agreement, dated as of December 18, 2001 between
AMR and Judith Rodin. For document description, see AMR Corporation
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2002, as filed on July 19, 2002.
10.5 Deferred Compensation Agreement, dated as of December 18, 2001 between
AMR and John W. Bachmann. For document description, see AMR
Corporation Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2002, as filed on July 19, 2002.
10.6 Deferred Compensation Agreement, dated as of December 18, 2001 between
AMR and Armando M. Codina. For document description, see AMR
Corporation Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2002, as filed on July 19, 2002.
-18-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
10.7 Deferred Compensation Agreement, dated as of December 18, 2001 between
AMR and Philip J. Purcell. For document description, see AMR
Corporation Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2002, as filed on July 19, 2002.
10.8 American Airlines, Inc. 2002 Employee Profit Sharing Plan. For
document description, see AMR Corporation Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2002, as filed on July
19, 2002.
10.9 American Airlines, Inc. 2002 Incentive Compensation Plan for Officers
and Key Employees. For document description, see AMR Corporation
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2002, as filed on July 19, 2002.
10.10 AMR Corporation 2002 - 2004 Performance Share Plan for Officers and
Key Employees under the 1998 Long-Term Incentive Plan, as amended. For
document description, see AMR Corporation Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2002, as filed on July
19, 2002.
10.11 AMR Corporation 2002 - 2004 Performance Share Program Deferred Stock
Award Agreement under the 1998 Long-Term Incentive Plan, as amended.
For document description, see AMR Corporation Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2002, as filed on July
19, 2002.
10.12 Current form of Stock Option Agreement under the 1998 Long-Term
Incentive Plan, as amended. For document description, see AMR
Corporation Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2002, as filed on July 19, 2002.
12 Computation of ratio of earnings to fixed charges for the three and
six months ended June 30, 2002 and 2001.
99 Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18,
United States Code).
Form 8-Ks filed under Item 5 - Other Events
On June 13, 2002, AMR filed a report on Form 8-K relating to a press
release issued by American to announce the appointment of Jeffrey C. Campbell as
Senior Vice President and Chief Financial Officer of the Company.
On June 19, 2002, AMR filed a report on Form 8-K to provide updated monthly
guidance on unit cost, fuel, traffic and capacity for the months of May through
August 2002.
Form 8-Ks furnished under Item 9 - Regulation FD Disclosure
On April 4, 2002, AMR furnished a report on Form 8-K to announce AMR's
intent to host a conference call on April 17, 2002 with the financial community
relating to its first quarter 2002 earnings.
On May 31, 2002, AMR furnished a report on Form 8-K to provide updated
monthly guidance on unit cost, fuel, traffic and capacity for the months of
March through July 2002.
On June 5, 2002, AMR furnished a report on Form 8-K to provide information
regarding a presentation by Don Carty, Chairman and CEO of AMR, at the Merrill
Lynch Global Transportation Conference.
-19-
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 18, 2002 BY: /s/ Jeffrey C. Campbell
-------------------------------------------------
Jeffrey C. Campbell
Senior Vice President and Chief Financial Officer
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CERTIFICATIONS
I, Donald J. Carty, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A No. 1 of AMR
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 18, 2002 /s/ Donald J. Carty
-----------------------------------------
Donald J. Carty
Chairman and Chief Executive Officer
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CERTIFICATIONS (CONTINUED)
I, Jeffrey C. Campbell, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A No. 1 of AMR
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 18, 2002 /s/ Jeffrey C. Campbell
-----------------------------------------
Jeffrey C. Campbell
Senior Vice President and Chief Financial
Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
12 Computation of ratio of earnings to fixed charges for the three and
six months ended June 30, 2002 and 2001.
99 Certification pursuant to section 906 of the Sarbanes-Oxley Act
of 2002 (subsections (a) and (b) of section 1350, chapter 63 of
title 18, United States Code).