================================================================================
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 MARCH 31, 2002.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period From to .
-------------------- ---------------------
Commission file number 1-8400.
AMR CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1825172
--------------------------------- ------------------------------------
(State or other 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 - 155,119,293 shares as of April 16, 2002.
================================================================================
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 March 31, 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 months ended March 31,
2002 and 2001
Condensed Consolidated Balance Sheets -- March 31, 2002 and December
31, 2001
Condensed Consolidated Statements of Cash Flows -- Three months ended
March 31, 2002 and 2001
Notes to Condensed Consolidated Financial Statements -- March 31, 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 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)
--------------------------------------------------------------------------------
Three Months Ended March 31,
------------------------------
2002 2001
------------ ------------
REVENUES
Passenger - American Airlines $ 3,484 $ 3,935
- AMR Eagle 305 354
Cargo 134 176
Other revenues 213 295
------------ ------------
Total operating revenues 4,136 4,760
------------ ------------
EXPENSES
Wages, salaries and benefits 2,080 1,746
Aircraft fuel 527 707
Depreciation and amortization 341 313
Other rentals and landing fees 289 257
Maintenance, materials and repairs 266 280
Aircraft rentals 226 148
Food service 170 184
Commissions to agents 161 224
Other operating expenses 805 905
------------ ------------
Total operating expenses 4,865 4,764
------------ ------------
OPERATING LOSS (729) (4)
OTHER INCOME (EXPENSE)
Interest income 18 40
Interest expense (166) (119)
Interest capitalized 22 41
Miscellaneous - net (8) (15)
------------ ------------
(134) (53)
------------ ------------
LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (863) (57)
Income tax benefit (288) (14)
------------ ------------
LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (575) (43)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX BENEFIT (988) --
------------ ------------
NET LOSS $ (1,563) $ (43)
============ ============
BASIC AND DILUTED LOSS PER SHARE
Before Cumulative Effect of Accounting Change $ (3.71) $ (0.28)
Cumulative Effect of Accounting Change (6.38) --
------------ ------------
Net Loss $ (10.09) $ (0.28)
============ ============
The accompanying notes are an integral part of these financial statements.
-1-
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
--------------------------------------------------------------------------------
March 31, December 31,
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 134 $ 120
Short-term investments 2,181 2,872
Receivables, net 1,858 1,414
Inventories, net 758 822
Deferred income taxes 793 790
Other current assets 547 522
------------ ------------
Total current assets 6,271 6,540
EQUIPMENT AND PROPERTY
Flight equipment, net 15,427 14,980
Other equipment and property, net 2,229 2,079
Purchase deposits for flight equipment 689 929
------------ ------------
18,345 17,988
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment, net 1,512 1,572
Other equipment and property, net 93 95
------------ ------------
1,605 1,667
Route acquisition costs 829 829
Airport operating and gate lease rights, net 487 496
Other assets 4,077 5,321
------------ ------------
$ 31,614 $ 32,841
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,462 $ 1,785
Accrued liabilities 2,284 2,192
Air traffic liability 2,930 2,763
Current maturities of long-term debt 520 556
Current obligations under capital leases 193 216
------------ ------------
Total current liabilities 7,389 7,512
Long-term debt, less current maturities 8,784 8,310
Obligations under capital leases, less current obligations 1,454 1,524
Deferred income taxes 1,602 1,627
Postretirement benefits 2,573 2,538
Other liabilities, deferred gains and deferred credits 5,922 5,957
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock 182 182
Additional paid-in capital 2,847 2,865
Treasury stock (1,693) (1,716)
Accumulated other comprehensive loss (71) (146)
Retained earnings 2,625 4,188
------------ ------------
3,890 5,373
------------ ------------
$ 31,614 $ 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)
--------------------------------------------------------------------------------
Three Months Ended March 31,
------------------------------
2002 2001
------------ ------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES $ (406) $ 19
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, including purchase deposits for flight equipment (619) (847)
Net decrease in short-term investments 691 758
Debtor-in-possession financing provided to Trans World Airlines, Inc. -- (312)
Proceeds from sale of equipment and property 13 127
------------ ------------
Net cash provided by (used for) investing activities 85 (274)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (259) (291)
Proceeds from:
Issuance of long-term debt 592 604
Exercise of stock options 2 25
------------ ------------
Net cash provided by financing activities 335 338
------------ ------------
Net increase in cash 14 83
Cash at beginning of period 120 89
------------ ------------
Cash at end of period $ 134 $ 172
============ ============
The accompanying notes are an integral part of these financial statements.
-3-
AMR CORPORATION
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. The Company's 2002 results continue to
be adversely impacted by the September 11, 2001 terrorist attacks. In
addition, on April 9, 2001, American Airlines, Inc. (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 are included in the
accompanying condensed consolidated financial statements for the
three-month period ended March 31, 2002 but not for the three-month
period ended March 31, 2001. When utilized in this report, all
references to American Airlines, Inc. include TWA (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"). Certain amounts from 2001 have been
reclassified to conform with the 2002 presentation.
2. Accumulated depreciation of owned equipment and property at March 31,
2002 and December 31, 2001 was $8.9 billion. Accumulated amortization
of equipment and property under capital leases at March 31, 2002 and
December 31, 2001 was $1.2 billion.
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):
Three Months Ended
March 31, 2001
--------------------
Operating revenues $ 5,542
Net loss (104)
Loss per share $ (0.67)
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)
--------------------------------------------------------------------------------
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 March 31, 2002, the Company had commitments to acquire the
following aircraft: 47 Boeing 737-800s, 12 Boeing 777-200ERs, nine
Boeing 767-300ERs, one Boeing 757-200, 117 Embraer regional jets and 22
Bombardier CRJ-700s. Deliveries of these aircraft are scheduled to
continue through 2008. Payments for these aircraft are expected to be
approximately $825 million during the remainder of 2002, $1.7 billion
in 2003, $1.2 billion in 2004 and an aggregate of approximately $1.9
billion in 2005 through 2008.
6. During the three-month period ended March 31, 2002, American and AMR
Eagle borrowed approximately $348 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 $215 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 ($6.38 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)
--------------------------------------------------------------------------------
The following table provides information relating to the Company's
amortized intangible assets as of March 31, 2002 (in millions):
Accumulated
Cost Amortization
--------------- ---------------
AMORTIZED INTANGIBLE ASSETS:
Airport operating rights $ 516 $ 163
Gate lease rights 209 75
--------------- ---------------
Total $ 725 $ 238
=============== ===============
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-month period ended March 31, 2002, the Company recorded
amortization expense of approximately $9 million 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 SFAS 142 - assuming the Company had adopted
this standard as of January 1, 2001 - is immaterial to the Company's
net loss and loss per share for the three-month period ended March 31,
2001.
8. 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 income (loss). For the three months
ended March 31, 2002 and 2001, comprehensive income (loss) was $(1,488)
million and $31 million, respectively. The difference between net loss
and comprehensive loss for the three months ended March 31, 2002 is due
primarily to the accounting for the Company's derivative financial
instruments under SFAS 133. The difference between net loss and
comprehensive income for the three months ended March 31, 2001 was due
primarily to the cumulative effect of the adoption of SFAS 133 and the
accounting for the Company's derivative financial instruments under
SFAS 133.
-6-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
--------------------------------------------------------------------------------
9. 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 March 31,
--------------------------------
2002 2001
------------- -------------
NUMERATOR:
Net loss before cumulative effect of accounting change - numerator
for basic and diluted loss per share $ (575) $ (43)
============= =============
DENOMINATOR:
Denominator for basic and diluted loss per share before cumulative effect
of accounting change - weighted-average shares 155 154
============= =============
Basic and diluted loss per share before cumulative effect of
accounting change $ (3.71) $ (0.28)
============= =============
For the three months ended March 31, 2002 and 2001, approximately 9
million and 14 million potential dilutive shares, respectively, were
not added to the denominator because inclusion of such shares would be
antidilutive.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
SUMMARY AMR Corporation's (AMR or the Company) LOSS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE during the first quarter of 2002 was $575 million, or $3.71
per share, as compared to a net loss of $43 million, or $0.28 per share for the
same period in 2001. AMR's OPERATING LOSS of $729 million increased $725 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. In addition, on
April 9, 2001, American Airlines, Inc. (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 are
included in the accompanying condensed consolidated financial statements for the
three-month period ended March 31, 2002 but not for the three-month period ended
March 31, 2001. All references to American Airlines, Inc. include TWA
(collectively, American). In addition, effective January 1, 2002, 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.
Although traffic has continued to increase on significantly reduced capacity
since the events of September 11, 2001, the Company's first quarter 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 --
and an increase in fare sale activity. In total, the Company's REVENUES
decreased $624 million, or 13.1 percent, in the first quarter of 2002 from the
same period last year. American's PASSENGER REVENUES decreased by 11.5 percent,
or $451 million in the first three months of 2002 from the same period in 2001.
American's domestic revenue per available seat mile (RASM) decreased 15.4
percent, to 8.7 cents, on a capacity increase of 9.4 percent, to 29.3 billion
available seat miles (ASMs). International RASM decreased to 8.66 cents, or 10.6
percent, on a capacity decrease of 11.4 percent. The decrease in international
RASM was due to a 14.1 percent decrease and 11.9 percent decrease in European
and Latin American RASM, respectively, slightly offset by a 9 percent increase
in Pacific RASM. The decrease in international capacity was driven by a 39.5
percent, 13.9 percent and 4 percent reduction in Pacific, European and Latin
American ASMs, respectively.
AMR Eagle's PASSENGER REVENUES decreased 13.8 percent, or $49 million. AMR
Eagle's traffic increased 6.9 percent while capacity decreased 1.3 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 $42 million, or 23.9 percent, for the same reasons as
noted above.
OTHER REVENUES decreased 27.8 percent, or $82 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.
The Company's OPERATING EXPENSES increased 2.1 percent, or $101 million.
American's cost per ASM increased 0.4 percent to 11.30 cents. WAGES, SALARIES
AND BENEFITS increased 19.1 percent, or $334 million, primarily due to
contractual wage rate and seniority increases that are built into the Company's
labor contracts. In addition, the Company experienced increases in its pension
and health insurance costs, the latter reflecting rapidly rising medical care
and prescription drug costs. AIRCRAFT FUEL expense decreased 25.5 percent, or
$180 million, due primarily to a 23.3 percent decrease in the Company's average
price per gallon of fuel. OTHER RENTALS AND LANDING FEES increased 12.5 percent,
or $32 million, due to higher facilities rent and landing fees across American's
system. AIRCRAFT RENTALS increased $78 million, or 52.7 percent, due primarily
to the addition of TWA aircraft. COMMISSIONS TO AGENTS decreased 28.1 percent,
or $63 million, due primarily to an 11.7 percent decrease in passenger revenues
and a decrease in the percentage of commissionable transactions. OTHER OPERATING
EXPENSES decreased 11 percent, or $100 million, due primarily to decreases in
contract maintenance work that American performs for other airlines, and
decreases in travel and incidental costs, advertising and promotion costs, and
credit card fees, which were partially offset by higher insurance and security
costs.
-8-
OTHER INCOME (EXPENSE), historically a net expense, increased $81 million due to
the following: INTEREST INCOME decreased 55 percent, or $22 million, due
primarily to decreases in interest rates. INTEREST EXPENSE increased $47
million, or 39.5 percent, resulting primarily from the increase in the Company's
long-term debt. INTEREST CAPITALIZED decreased $19 million, or 46.3 percent, due
primarily to a decrease in purchase deposits for flight equipment.
MISCELLANEOUS-NET decreased 46.7 percent, or $7 million, due to the write-down
of certain investments held by the Company during the first quarter of 2001.
The effective tax rate for the three months ended March 31, 2002 was impacted by
a $27 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.
OPERATING STATISTICS
Three Months Ended March 31,
------------------------------
2002 2001
------------ ------------
AMERICAN AIRLINES (*)
Revenue passenger miles (millions) 27,817 26,452
Available seat miles (millions) 40,089 38,977
Cargo ton miles (millions) 463 549
Passenger load factor 69.4% 67.9%
Breakeven load factor 87.4% 68.2%
Passenger revenue yield per passenger mile (cents) 12.52 14.88
Passenger revenue per available seat mile (cents) 8.69 10.10
Cargo revenue yield per ton mile (cents) 28.74 31.68
Operating expenses per available seat mile (cents) 11.30 11.26
Fuel consumption (gallons, in millions) 745 743
Fuel price per gallon (cents) 67.2 87.6
Fuel price per gallon, excluding fuel taxes (cents) 61.7 82.0
Operating aircraft at period-end 852 719
AMR EAGLE
Revenue passenger miles (millions) 919 860
Available seat miles (millions) 1,567 1,588
Passenger load factor 58.6% 54.2%
Operating aircraft at period-end 283 267
(*) 2002 statistics include the operating results of TWA whereas the 2001
amounts do not.
-9-
Operating aircraft at March 31, 2002, included:
AMERICAN AIRLINES AIRCRAFT AMR EAGLE AIRCRAFT
Airbus A300-600R 34 ATR 42 29
Boeing 717-200 (1) 11 Bombardier CRJ-700 3
Boeing 727-200 (2) 15 Embraer 135 40
Boeing 737-800 77 Embraer 140 22
Boeing 757-200 150 Embraer 145 56
Boeing 767-200 8 Super ATR 42
Boeing 767-200 Extended Range 21 Saab 340B 66
Boeing 767-300 Extended Range 58 Saab 340B Plus 25
Boeing 777-200 Extended Range 42 ------------
Fokker 100 74 Total 283
McDonnell Douglas MD-80 362 ============
------------
Total 852
============
(1) The Boeing 717-200 fleet will be removed from service by June 2002.
(2) The Boeing 727-200 fleet will be removed from service by May 2002.
The average aircraft age for American's aircraft is 9.9 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 March 31, 2002: 19 owned Boeing 727-200s, 15 operating leased
McDonnell Douglas DC-9s, 19 operating leased Boeing 717-200s, nine owned
McDonnell Douglas DC-10-10s, four operating leased McDonnell Douglas MD-80s,
three owned McDonnell Douglas MD-11s, two owned McDonnell Douglas DC-10-30s, and
four owned, six capital leased and two operating leased Saab 340Bs.
LIQUIDITY AND CAPITAL RESOURCES
NET CASH USED FOR OPERATING ACTIVITIES in the three-month period ended March 31,
2002 was $406 million, an increase of $425 million over the same period in 2001,
due primarily to an increase in the Company's net loss. Capital expenditures for
the first three months of 2002 were $619 million, and included the acquisition
of six Boeing 757-200s, two Boeing 777-200ERs, seven Embraer 140s and two
Bombardier CRJ-700 aircraft. These capital expenditures were financed primarily
through secured mortgage and debt agreements.
As of March 31, 2002, the Company had commitments to acquire the following
aircraft: 47 Boeing 737-800s, 12 Boeing 777-200ERs, nine Boeing 767-300ERs, one
Boeing 757-200, 117 Embraer regional jets and 22 Bombardier CRJ-700s. Deliveries
of these aircraft are scheduled to continue through 2008. Payments for these
aircraft are expected to be approximately $825 million during the remainder of
2002, $1.7 billion in 2003, $1.2 billion in 2004 and an aggregate of
approximately $1.9 billion in 2005 through 2008.
OTHER INFORMATION
In addition to the Company's approximately $2.3 billion in cash and short-term
investments as of March 31, 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 $100 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 (in April
2002, the Company received approximately $393 million related to the utilization
of its remaining 2001 NOL), (vi) tax-exempt borrowings for airport facilities,
(vii) securitization of future operating receipts, (viii) unsecured borrowings,
and (ix) borrowings backed by federal loan guarantees as provided under the Act.
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.
-10-
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 May 19, 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 contract further limits the number of ASMs and block hours
flown by American's regional carrier partners when American pilots are on
furlough. As AMR Eagle continues to accept previously ordered regional jets,
this will cause the ASM cap to be reached sometime in the first half of 2002,
necessitating actions to comply with that cap. American is working with its
regional partners to ensure that it is in compliance with this provision.
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 American Connection carriers, which are independent
carriers that provide feed to American's St. Louis hub. American believes that
the combination of all these actions will enable it to comply with the ASM cap
through 2002 and for sometime beyond.
OUTLOOK
Capacity for American is expected to be down approximately 11 percent in the
second quarter of 2002 compared to last year's second quarter levels. AMR
Eagle's second quarter capacity will be down about three percent from last
year's levels. For the second quarter of 2002, the Company expects traffic to be
lower by approximately 11 percent as compared to last year's second quarter
levels. Pressure to reduce costs will continue, although the Company will
continue to see higher wages, salaries and benefit costs, higher security costs
and insurance premiums, and greater interest expense. Although the Company
expects to see an increase in fuel prices as compared to the first quarter of
2002, fuel prices are expected to remain lower in the second quarter of 2002 as
compared to last year's second quarter prices. Further, the Company expects to
see a benefit in commission expense due to the domestic base commission changes
implemented in March 2002. In total however, American's unit costs for the
second quarter of 2002 are expected to be two to three percent higher than last
year's second quarter. Given this higher unit cost, coupled with the revenue
pressures seen in the first quarter and expected to continue into the second
quarter, the Company expects to incur a loss in the second quarter (although the
Company does not expect this loss to be of the same magnitude as the Company's
first quarter loss), and will likely incur a loss for 2002.
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 Form 10-K for the year ended December
31, 2001.
-11-
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 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.
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. No date has been set for oral
argument. 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.
-12-
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
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 January 30, 2002, the named plaintiff in Hall 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
1997 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 plaintiff seeks 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 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.
-13-
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, 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 January 16, 2002, AMR filed a report on Form 8-K relating to a press
release issued by AMR to announce AMR's fourth quarter and full year 2001
earnings and an agreement with Boeing for the retirement of the Company's 717
fleet.
Form 8-Ks furnished under Item 9 - Regulation FD Disclosure
On January 7, 2002, AMR furnished a report on Form 8-K to announce
AMR's intent to host a conference call on January 16, 2002 with the financial
community relating to its fourth quarter and full year 2001 earnings.
On January 25, 2002, AMR furnished a report on Form 8-K to provide an
updated fleet plan for AMR. In addition, AMR provided information regarding
presentations by AMR's senior management at upcoming transportation conferences.
On February 22, 2002, AMR furnished a report on Form 8-K to provide
certain data regarding its unit costs, capacity, traffic and fuel for the first
quarter of 2002.
On March 22, 2002, AMR furnished a report on Form 8-K to provide
certain data regarding its unit costs, fuel, capacity and traffic for February
through May 2002. Additionally, AMR provided information on the recently passed
economic stimulus package which contained a provision regarding net operating
loss carryback that was favorable to AMR.
-14-
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
-15-
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
-16-
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
-17-
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
12 Computation of ratio of earnings to fixed charges for the
three months ended March 31, 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).