-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MZHHPdPJaWhZyCFKk3tpEo1LvtYlKpjMLDvJpBb0elh7z0HPGkG7KA4R6t08QZi1 dfHGu6aAT4uXrldj1q6YwQ== /in/edgar/work/0000004515-00-000008/0000004515-00-000008.txt : 20001027 0000004515-00-000008.hdr.sgml : 20001027 ACCESSION NUMBER: 0000004515-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001026 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN AIRLINES INC CENTRAL INDEX KEY: 0000004515 STANDARD INDUSTRIAL CLASSIFICATION: [4512 ] IRS NUMBER: 751825172 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02691 FILM NUMBER: 746124 BUSINESS ADDRESS: STREET 1: 4333 AMON CARTER BLVD CITY: FT WORTH STATE: TX ZIP: 76155 BUSINESS PHONE: 8179631234 MAIL ADDRESS: STREET 1: P O BOX 619616 MD5661 CITY: DALLAS FORT WORTH AI STATE: TX ZIP: 75261-9616 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN AIRWAYS INC DATE OF NAME CHANGE: 19670629 10-Q 1 0001.txt 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 2000. [ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From to . Commission file number 1-2691. American Airlines, Inc. (Exact name of registrant as specified in its charter) Delaware 13-1502798 (State or other (I.R.S. Employer jurisdiction Identification No.) of incorporation or organization) 4333 Amon Carter Blvd. Fort Worth, Texas 76155 (Address of principal (Zip Code) executive offices) Registrant's telephone number, (817) 963-1234 including area code Not Applicable (Former name, former address and former fiscal year , if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $1 par value - 1,000 shares as of October 19, 2000 The registrant meets the conditions set forth in, and is filing this form with the reduced disclosure format prescribed by, General Instructions H(1)(a) and (b) of Form 10-Q. 2 INDEX AMERICAN AIRLINES, INC. PART I: FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations -- Three and nine months ended September 30, 2000 and 1999 Condensed Consolidated Balance Sheets -- September 30, 2000 and December 31, 1999 Condensed Consolidated Statements of Cash Flows -- Nine months ended September 30, 2000 and 1999 Notes to Condensed Consolidated Financial Statements -- September 30, 2000 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk PART II: OTHER INFORMATION Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K SIGNATURE 3 PART I: FINANCIAL INFORMATION Item 1. Financial Statements AMERICAN AIRLINES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In millions, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 Revenues Passenger $4,385 $3,900 $ 12,341 $ 10,971 Cargo 182 158 525 463 Other 266 259 779 769 Total operating revenues 4,833 4,317 13,645 12,203 Expenses Wages, salaries and benefits 1,617 1,435 4,701 4,284 Aircraft fuel 616 436 1,682 1,167 Depreciation and amortization 273 247 790 713 Commissions to agents 249 294 747 845 Other rentals and landing fees 231 228 684 661 Maintenance, materials and repairs 228 218 674 616 Food service 202 195 581 543 Aircraft rentals 140 147 420 445 Other operating expenses 760 737 2,192 2,158 Total operating expenses 4,316 3,937 12,471 11,432 Operating Income 517 380 1,174 771 Other Income (Expense) Interest income 40 19 104 53 Interest expense (71) (62) (210) (165) Interest capitalized 35 25 104 83 Related party interest -net 2 11 8 31 Miscellaneous - net (8) (8) 40 16 (2) (15) 46 18 Earnings Before Income Taxes 515 365 1,220 789 Income tax provision 199 145 475 318 Net Earnings $ 316 $ 220 $ 745 $ 471
The accompanying notes are an integral part of these financial statements. -1- 4 AMERICAN AIRLINES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions)
September 30, December 31, 2000 1999 Assets Current Assets Cash $ 168 $ 72 Short-term investments 2,098 1,645 Receivables, net 1,476 1,124 Receivable from affiliates, net 509 651 Inventories, net 626 616 Deferred income taxes 597 597 Other current assets 177 176 Total current assets 5,651 4,881 Equipment and Property Flight equipment, net 11,450 9,916 Other equipment and property, net 1,543 1,383 Purchase deposits for flight equipment 1,523 1,495 14,516 12,794 Equipment and Property Under Capital Leases Flight equipment, net 1,479 1,623 Other equipment and property, net 97 98 1,576 1,721 Route acquisition costs, net 865 887 Other assets, net 1,370 1,436 $ 23,978 $ 21,719 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 1,229 $ 991 Accrued liabilities 2,141 1,790 Air traffic liability 2,929 2,255 Current maturities of long-term debt 101 61 Current obligations under capital leases 248 210 Total current liabilities 6,648 5,307 Long-term debt, less current maturities 2,245 2,231 Obligations under capital leases, less current obligations 1,235 1,414 Deferred income taxes 1,867 1,581 Other liabilities, deferred gains, deferred credits and postretirement benefits 4,088 4,036 Stockholders' Equity Common stock - - Additional paid-in capital 1,836 1,840 Accumulated other comprehensive income (2) (2) Retained earnings 6,061 5,312 7,895 7,150 $ 23,978 $ 21,719
The accompanying notes are an integral part of these financial statements. -2- 5 AMERICAN AIRLINES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions)
Nine Months Ended September 30, 2000 1999 Net Cash Provided by Operating Activities $2,681 $ 604 Cash Flow from Investing Activities: Capital expenditures, including net change in purchase deposits for flight equipment (2,485) (1,786) Net decrease (increase) in short-term investments (453) 271 Acquisitions and other investments (15) (44) Proceeds from sale of equipment and property 206 40 Proceeds from sale of other investments 94 31 Net cash used for investing activities (2,653) (1,488) Cash Flow from Financing Activities: Payments on long-term debt and capital lease obligations (176) (98) Proceeds from issuance of long-term debt 102 612 Sale-leaseback transactions - 54 Funds transferred from affiliates, net 142 275 Net cash provided by financing activities 68 843 Net increase (decrease) in cash 96 (41) Cash at beginning of period 72 85 Cash at end of period $ 168 $ 44 Activities Not Affecting Cash: Capital lease obligations incurred $ - $ 54
The accompanying notes are an integral part of these financial statements. -3- 6 AMERICAN AIRLINES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1.The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Results of operations for the periods presented herein are not necessarily indicative of results of operations for the entire year. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date. For further information, refer to the consolidated financial statements and footnotes thereto included in the American Airlines, Inc. (American or the Company) Annual Report on Form 10-K for the year ended December 31, 1999. Certain amounts from 1999 have been reclassified to conform with the 2000 presentation. 2.Accumulated depreciation of owned equipment and property at September 30, 2000 and December 31, 1999, was $7.5 billion and $7.0 billion, respectively. Accumulated amortization of equipment and property under capital leases at September 30, 2000 and December 31, 1999, was $1.2 billion and $1.1 billion, respectively. 3.As discussed in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, the Miami International Airport Authority is currently remediating various environmental conditions at Miami International Airport (Airport) and funding the remediation costs through landing fee revenues. Future costs of the remediation effort may be borne by carriers operating at the Airport, including American, through increased landing fees and/or other charges. In addition, the Company is subject to environmental issues at various other airport and non-airport locations. Management believes, after considering a number of factors, that the ultimate disposition of these environmental issues is not expected to materially affect the Company's consolidated financial position, results of operations, or cash flows. Amounts recorded for environmental issues are based on the Company's current assessments of the ultimate outcome and, accordingly, could increase or decrease as these assessments change. 4.As of October 2, 2000, the Company had commitments to acquire the following aircraft: 67 Boeing 737-800s, 21 Boeing 777-200IGWs and 20 Boeing 757-200s. Deliveries of these aircraft extend through 2004. Payments for these aircraft will approximate $520 million during the remainder of 2000, $2.1 billion in 2001, $830 million in 2002 and an aggregate of approximately $310 million in 2003 and 2004. 5.During 1999, the Company entered into an agreement with priceline.com Incorporated (priceline) whereby ticket inventory provided by the Company may be sold through priceline's e-commerce system. In conjunction with this agreement, the Company received warrants to purchase approximately 5.5 million shares of priceline common stock. In the second quarter of 2000, the Company sold these warrants for proceeds of approximately $94 million, and recorded a pre-tax gain of $57 million ($36 million after-tax), which is included in Miscellaneous - net on the consolidated statements of operations. 6.In connection with a secondary offering by Equant N.V. in February 1999, the Company sold approximately 433,000 depository certificates for proceeds of $31 million. The Company recorded a pre-tax gain of $31 million ($19 million after-tax) as a result of this transaction which is included in Miscellaneous - net on the consolidated statements of operations. -4- 7 AMERICAN AIRLINES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) 7.Financial Accounting Standards Board Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), as amended, is required to be adopted in fiscal years beginning after June 15, 2000. SFAS 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company will adopt SFAS 133 in the first quarter of fiscal year 2001. The Company is currently evaluating the impact of SFAS 133 on the Company's financial condition and results of operations. -5- 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS For the Nine Months Ended September 30, 2000 and 1999 American recorded net earnings for the nine months ended September 30, 2000 of $745 million. This compares to net earnings of $471 million for the nine months ended September 30, 1999. American's operating income of $1.2 billion increased $403 million compared to the same period in 1999. The Company's 2000 results include the effect of a labor disruption at one of the Company's major competitors which positively impacted the Company's net earnings and an after-tax gain of approximately $36 million related to the sale of the Company's warrants to purchase 5.5 million shares of priceline.com Incorporated (priceline) common stock. The Company's 1999 results include a labor disagreement that disrupted the Company's operations and negatively impacted the Company's 1999 net earnings by an estimated $140 million. This was partially offset by the after-tax gain related to the sale of a portion of American's holdings in Equant, N.V. (Equant) of approximately $19 million. The Company's revenues increased approximately $1.4 billion, or 11.8 percent, during the first nine months of 2000 versus the same period last year. American's passenger revenues increased by 12.5 percent, or approximately $1.4 billion. American's yield of 13.86 cents increased by 6.8 percent compared to the same period in 1999. Domestic yields increased 6.6 percent from the first nine months of 1999. International yields increased 7.5 percent, reflecting an increase of 12.0 percent, 10.4 percent and 4.8 percent in Pacific, Europe and Latin American yields, respectively. The increase in revenues was due primarily to a strong U.S. economy, which led to strong demand for air travel both domestically and internationally, a favorable pricing climate, and a labor disruption at one of the Company's major competitors which positively impacted the Company's revenues by approximately $80 million to $100 million. The first quarter of 1999 includes a schedule disruption which negatively impacted the Company's operations. American's traffic or revenue passenger miles (RPMs) increased 5.4 percent to 89.1 billion miles for the nine months ended September 30, 2000. American's capacity or available seat miles (ASMs) increased 1.0 percent to 121.5 billion miles in the first nine months of 2000. American's domestic traffic increased 4.2 percent on a capacity decrease of 0.5 percent and international traffic increased 7.8 percent on capacity increases of 4.2 percent. The decrease in domestic capacity was due primarily to the Company's "More Room Throughout Coach" initiative. The increase in international traffic was driven by a 12.7 percent increase in traffic to the Pacific on capacity growth of 3.5 percent, a 10.1 percent increase in traffic to Europe on a capacity increase of 7.9 percent and a 4.6 percent increase in traffic to Latin America on capacity growth of 1.4 percent. Cargo revenues increased $62 million, or 13.4 percent, due primarily to a fuel surcharge implemented in February 2000, the Company's increase in cargo capacity from the addition of new aircraft in late 1999 and 2000, and a labor disruption at one of the Company's major competitors. The Company's operating expenses increased 9.1 percent, or approximately $1.0 billion. American's cost per ASM increased by 8.4 percent to 10.17 cents. Wages, salaries and benefits increased $417 million, or 9.7 percent, primarily due to an increase in the average number of equivalent employees, contractual wage rate and seniority increases that are built into the Company's labor contracts and an increase of approximately $117 million in the provision for profit- sharing. Aircraft fuel expense increased 44.1 percent, or $515 million, due to a 39.7 percent increase in the Company's average price per gallon and a 3.3 percent increase in the Company's fuel consumption. The increase in fuel expense is net of gains of approximately $371 million recognized during the nine months ended September 30, 2000 related to the Company's fuel hedging program. Depreciation and amortization expense increased $77 million, or 10.8 percent, due primarily to the addition of new aircraft. Commissions to agents decreased 11.6 percent, or $98 million, despite an increase of approximately 12.5 percent in passenger revenues, due primarily to the benefit from the international base commission structure changes implemented in October 1999 and January 2000, respectively, and a decrease in commissionable transactions. -6- 9 RESULTS OF OPERATIONS (Continued) Interest income increased $51 million, or 96.2 percent, due primarily to higher investment balances. Interest expense increased $45 million, or 27.3 percent, due to an increase in the average outstanding long-term debt balance in 2000. Interest capitalized increased 25.3 percent, or $21 million, due primarily to an increase in purchase deposits for flight equipment. Related party interest - net decreased $23 million due primarily to lower affiliate intercompany balances with American. Miscellaneous - net increased $24 million due primarily to the gain on sale of the Company's warrants to purchase 5.5 million shares of priceline common stock in the second quarter of 2000, which resulted in a $57 million gain. In the first quarter of 1999, the Company recorded an approximate $31 million gain on the sale of a portion of the Company's interest in Equant. OTHER INFORMATION Aircraft Commitments As of October 2, 2000, the Company had commitments to acquire the following aircraft: 67 Boeing 737-800s, 21 Boeing 777-200IGWs and 20 Boeing 757-200s. Deliveries of these aircraft extend through 2004. Payments for these aircraft will approximate $520 million during the remainder of 2000, $2.1 billion in 2001, $830 million in 2002 and an aggregate of approximately $310 million in 2003 and 2004. The Company expects to fund these capital expenditures from the Company's existing cash and short-term investments, internally generated cash, and new financing depending upon market conditions and the Company's evolving view of its long-term needs. Dividend to AMR On October 18, 2000, the Board of Directors of American Airlines declared a $1.5 billion cash dividend payable on or about November 1, 2000 to AMR. The purpose of the dividend is to establish a cash management function at AMR to implement future decisions regarding uses of cash and to improve efficiency. Dallas Love Field In 1968, as part of an agreement between the cities of Fort Worth and Dallas to build and operate Dallas/Fort Worth Airport (DFW), a bond ordinance was enacted by both cities (the Bond Ordinance). The Bond Ordinance required both cities to direct all scheduled interstate passenger operations to DFW and was an integral part of the bonds issued for the construction and operation of DFW. In 1979, as part of a settlement to resolve litigation with Southwest Airlines, the cities agreed to expand the scope of operations allowed under the Bond Ordinance at Dallas' Love Field. Congress enacted the Wright Amendment to prevent the federal government from acting inconsistent with this agreement. The Wright Amendment limited interstate operations at Love Field to the four states contiguous to Texas (New Mexico, Oklahoma, Arkansas, and Louisiana) and prohibited through ticketing to any destination outside that perimeter. In 1997, without the agreement of the cities, Congress amended the Wright Amendment by (i) adding three states (Kansas, Mississippi, and Alabama) to the perimeter and (ii) removing some federal restrictions on large aircraft configured with 56 seats or fewer. From October 1997 through May 2000, American, the cities of Fort Worth and Dallas, and other parties were involved in litigation regarding flight restrictions at Love Field. On May 1, 2000, American commenced service from Love Field to Chicago and Los Angeles using Fokker 100 aircraft reconfigured to hold 56 seats. These flights depart from terminal space leased from Continental Express on a short-term basis. On August 31, 2000, American commenced service from Love Field to New York's LaGuardia airport using the same facilities. American is seeking long-term facilities at Love Field from the City of Dallas for its Love Field operations. Consultants for the City of Dallas are drafting a master plan for Love Field and expect to make recommendations to the City of Dallas by the end of November 2000. As a result of the foregoing, an increase in operations at Love Field and/or the inability of American to obtain adequate facilities to compete effectively at Love Field could adversely impact American's business. -7- 10 Industry Consolidation Two competitors of the Company, UAL Corporation and US Airways Group, Inc., recently announced that they have entered into a definitive merger agreement. The Company is considering its strategic response to the possibility of industry consolidation, and from time to time is engaged in discussions with other carriers regarding potential significant business combinations and acquisitions of assets. To date these discussions have not resulted in a definitive agreement between the Company and any other carrier to enter into such a business combination or asset acquisition; however, there can be no assurance that the Company will not enter into such a transaction in the future. If any significant airline industry consolidation were to occur, including any business combination involving the Company or significant asset acquisition by the Company, the financial condition and prospects of the Company or the resulting corporation could be materially different from those of the Company currently. FORWARD-LOOKING INFORMATION Statements in this report contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events. When used in this report, the words "expects," "plans," "anticipates," and similar expressions are intended to identify forward-looking statements. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Forward-looking statements are subject to a number of factors that could cause actual results to differ materially from our expectations. Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings, included but not limited to the Form 10-K for the year ended December 31, 1999. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of the Company's Annual Report on Form 10-K for the year ended December 31, 1999 except as discussed below. Based on projected fuel usage for the next twelve months, a hypothetical 10 percent increase in the September 29, 2000 cost per gallon of fuel would result in an increase to American's aircraft fuel expense of approximately $192 million for the next twelve months, net of fuel hedge instruments outstanding at September 30, 2000. The change in market risk from December 31, 1999 is due primarily to the increase in fuel prices. As of September 30, 2000, the Company has hedged approximately 70 percent of its remaining 2000 fuel requirements and approximately 35 percent of its 2001 fuel requirements. During 2000, the Company terminated interest rate swap agreements on notional amounts of approximately $425 million which had effectively converted a portion of its fixed-rate obligations to floating-rate obligations. The cost of terminating these interest rate swap agreements was not material and the impact of the termination of these interest rate swap agreements on the Company's interest rate market risk was not significant. -8- 11 PART II: OTHER INFORMATION Item 1. Legal Proceedings In connection with its frequent flyer program, American was sued in several purported class action cases currently pending in the Circuit Court of Cook County, Illinois. In Wolens et al. v. American Airlines, Inc. and Tucker v. American Airlines, Inc. (hereafter, "Wolens"), plaintiffs seek money damages and attorneys' fees claiming that a change made to American's AAdvantage program in May 1988, which limited the number of seats available to participants travelling on certain awards, breached American's agreement with its AAdvantage members. (Although the Wolens complaint originally asserted several state law claims, only the plaintiffs' breach of contract claim remains after the U.S. Supreme Court ruled that the Airline Deregulation Act preempted the other claims). In Gutterman et al. v. American Airlines, Inc. (hereafter, "Gutterman"), plaintiffs also seek money damages and attorneys' fees claiming that the February 1995 increase in the award mileage required to claim a certain AAdvantage travel award breached the agreement between American and its AAdvantage members. On June 23, 1998, the court certified the Gutterman case as a class action. In February 2000, American and the Wolens and Gutterman plaintiffs reached a settlement of both lawsuits. Pursuant to the agreement, American and the plaintiffs agreed to ask the court to consolidate the Wolens and Gutterman lawsuits for purposes of settlement. Further, American and the Wolens plaintiffs agreed to ask the court to certify a Wolens class of AAdvantage members who had at least 35,000 unredeemed AAdvantage miles as of December 31, 1988. In addition, American and the Gutterman plaintiffs agreed to ask the court to decertify the existing Gutterman class and to certify a new Gutterman class of AAdvantage members who as of December 31, 1993 (a) had redeemed 25,000 or 50,000 AAdvantage miles for certain AAdvantage awards and/or (b) had between 4,700 and 24,999 unredeemed miles in his or her account that were earned in 1992 or 1993. Depending upon certain factors, Wolens and Gutterman class members will be entitled to receive certificates entitling them to mileage off certain AAdvantage awards or dollars off certain American fares. As part of the settlement, American agreed to pay the Wolens and Gutterman plaintiffs' attorneys fees and the cost of administering the settlement, which amounts were accrued as of December 31, 1999. In consideration for the relief provided in the settlement agreement, Wolens and Gutterman class members will release American from all claims arising from any changes that American has made to the AAdvantage program and reaffirming American's right to make changes to the AAdvantage program in the future. On May 2, 2000, the court preliminarily approved the settlement and authorized sending notice of the settlement to class members. On September 28, 2000, the court heard arguments from a number of class members who are objecting to various terms of the settlement. The court did not rule on the merits of any objections, and therefore has not yet decided whether it will finally approve the settlement agreement. On August 7, 1998, a purported class action was filed against American Airlines in state court in Travis County, Texas (Boon Ins. Agency v. American Airlines, Inc., et al.) claiming that the $75 reissuance fee for changes to non-refundable tickets is an unenforceable liquidated damages clause and seeking a refund of the fee on behalf of passengers who paid it, as well as interest and attorneys' fees. On September 23, 1998, Continental, Delta, and America West were added as defendants to the lawsuit. On February 2, 1999, prior to any discovery being taken and a class being certified, the court granted the defendants' motion for summary judgment holding that plaintiff's claims are preempted by the Airline Deregulation Act. Plaintiff appealed and on March 30, 2000, the Texas Court of Appeals in Austin affirmed the granting of defendants' motion for summary judgment. On August 17, 2000, the Texas Supreme Court denied the plaintiff's petition for review. -9- 12 PART II Item 1. Legal Proceedings (continued) On May 20, 1999, several class action lawsuits filed against the Allied Pilots Association (APA) seeking compensation for passengers and cargo shippers adversely affected by a labor disagreement that disrupted operations in February 1999 were consolidated in the United States District Court for the Northern District of Texas, Dallas Division (In re Allied Pilots Association Class Action Litigation). Although American was named as a defendant, plaintiffs were not seeking to hold American independently liable. Instead, Plaintiffs named American as a defendant because American has a $45.5 million judgment against the APA, the value of which is believed to exceed the APA's total assets. The APA moved to dismiss all claims alleged against it, and on September 26, 2000, the court dismissed all of the Plaintiffs' claims against the APA. In so doing, however, the court refused to dismiss certain state law claims with prejudice, but instead concluded that these state law claims were not preempted by federal law and could proceed in a state court. On October 3, 2000, Plaintiffs filed a complaint in Texas state court against the APA. In the complaints, Plaintiffs allege that in the event the APA does not have enough assets to satisfy American's $45.5 million judgment and any judgment the Plaintiffs' recover, any judgment in their case should be considered equal to or superior to American's interest in the $45.5 million judgment against the APA. American intends to vigorously defend all claims against it in this action. On July 26, 1999, a class action lawsuit was filed, and in November 1999 an amended complaint was filed, against AMR Corporation, American Airlines, Inc., AMR Eagle Holding Corporation, Airlines Reporting Corporation, and the Sabre Group Holdings, Inc. in the United States District Court for the Central District of California, Western Division (Westways World Travel, Inc. v. AMR Corp., et al.). The lawsuit alleges that requiring travel agencies to pay debit memos to American for violations of American's fare rules (by customers of the agencies) (1) breaches the Agent Reporting Agreement between American and American Eagle and plaintiffs, (2) constitutes unjust enrichment, and (3) violates the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO). The as yet uncertified class includes all travel agencies who have been or will be required to pay monies to American for debit memos for fare rules violations from July 26, 1995 to the present. Plaintiffs seek to enjoin American from enforcing the pricing rules in question and to recover the amounts paid for debit memos, plus treble damages, attorneys' fees, and costs. Defendants' motion to dismiss all claims is pending. American intends to vigorously defend the lawsuit. On May 13, 1999, the United States (through the Antitrust Division of the Department of Justice) sued AMR Corporation, American Airlines, Inc., and AMR Eagle Holding Corporation in federal court in Wichita, Kansas. The lawsuit alleges that American unlawfully monopolized or attempted to monopolize airline passenger service to and from Dallas/Fort Worth International Airport (DFW) by increasing service when new competitors began flying to DFW, and by matching these new competitors' fares. The Department of Justice seeks to enjoin American from engaging in the alleged improper conduct and to impose restraints on American to remedy the alleged effects of its past conduct. The case has been set for trial on May 22, 2001. American intends to defend the lawsuit vigorously. Between May 14, 1999 and June 7, 1999, seven class action lawsuits were filed against AMR Corporation, American Airlines, Inc., and AMR Eagle Holding Corporation in the United States District Court in Wichita, Kansas seeking treble damages under federal and state antitrust laws, as well as injunctive relief and attorneys' fees. (King v. AMR Corp., et al.; Smith v. AMR Corp., et al.; Team Electric v. AMR Corp., et al.; Warren v. AMR Corp., et al.; Whittier v. AMR Corp., et al.; Wright v. AMR Corp., et al.; and Youngdahl v. AMR Corp., et al.). Collectively, these lawsuits allege that American unlawfully monopolized or attempted to monopolize airline passenger service to and from DFW by increasing service when new competitors began flying to DFW, and by matching these new competitors' fares. Two of the suits (Smith and Wright) also allege that American unlawfully monopolized or attempted to monopolize airline passenger service to and from DFW by offering discounted fares to corporate purchasers, by offering a frequent flyer program, by imposing certain conditions on the use and availability of certain fares, and by offering override commissions to travel agents. The suits propose to certify several classes of consumers, the broadest of which is all persons who purchased tickets for air travel on American into or out of DFW since 1995 to the present. On November 10, 1999, the District Court stayed all of these actions pending developments in the case brought by the Department of Justice. As a result, to date no class has been certified. American intends to defend these lawsuits vigorously. -10- 13 PART II Item 1. Legal Proceedings (continued) On March 1, 2000, American was served with a federal grand jury subpoena calling for American to produce documents relating to de- icing operations at DFW since 1992. American has produced documents to the grand jury, but is not able at this time to determine either the full scope of the grand jury's investigation or American's role in the investigation. American intends to fully cooperate with the government's investigation. Item 6. Exhibits and Reports on Form 8-K The following exhibits are included herein: 12 Computation of ratio of earnings to fixed charges for the three and nine months ended September 30, 2000 and 1999. 27 Financial Data Schedule On July 20, 2000, American filed a report on Form 8-K relative to a press release issued by AMR to report AMR's second quarter 2000 earnings. -11- 14 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN AIRLINES, INC. Date: October 26, 2000 BY: /s/ Thomas W. Horton Thomas W. Horton Senior Vice President - Finance and Chief Financial Officer -12- 15 Exhibit 12 AMERICAN AIRLINES, INC. Computation of Ratio of Earnings to Fixed Charges (in millions)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 Earnings: Earnings before income taxes $515 $365 $1,220 $789 Add: Total fixed charges (per below) 265 261 800 757 Less: Interest capitalized 35 25 104 83 Total earnings $745 $601 $1,916 $1,463 Fixed charges: Interest, including interest capitalized $ 71 $ 62 $ 210 $ 165 Portion of rental expense representative of the interest factor 194 199 589 591 Amortization of debt expense - - 1 1 Total fixed charges $265 $261 $800 $757 Ratio of earnings to fixed charges 2.81 2.30 2.40 1.93
-13- EX-27 2 0002.txt
5 1,000,000 9-MOS DEC-31-2000 SEP-30-2000 168 2,098 2,013 28 626 5,651 24,748 8,656 23,978 6,648 3,480 0 0 0 7,895 23,978 0 13,645 0 12,471 0 0 210 1,220 475 745 0 0 0 745 0 0
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