e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended June 30, 2010.
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o |
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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 .
Commission file number 1-8400.
AMR Corporation
(Exact name of registrant as specified in its charter)
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Delaware
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75-1825172 |
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(State or other jurisdiction
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(I.R.S. Employer Identification No.) |
of incorporation or organization) |
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4333 Amon Carter Blvd. |
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Fort Worth, Texas
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76155 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants 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. þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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þ Large accelerated filer
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o Accelerated filer
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o Non-accelerated filer
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o Smaller reporting company |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes
o No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes þ No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Common Stock, $1 par value 333,050,087 shares as of July 14, 2010.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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Revenues |
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Passenger American Airlines |
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$ |
4,279 |
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$ |
3,677 |
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$ |
8,110 |
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$ |
7,357 |
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Regional Affiliates |
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600 |
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513 |
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1,098 |
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970 |
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Cargo |
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170 |
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134 |
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324 |
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278 |
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Other revenues |
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625 |
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565 |
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1,210 |
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1,123 |
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Total operating revenues |
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5,674 |
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4,889 |
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10,742 |
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9,728 |
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Expenses |
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Wages, salaries and benefits |
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1,714 |
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1,698 |
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3,417 |
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3,386 |
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Aircraft fuel |
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1,655 |
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1,334 |
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3,131 |
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2,632 |
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Other rentals and landing fees |
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352 |
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338 |
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704 |
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662 |
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Maintenance, materials and repairs |
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340 |
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314 |
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691 |
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619 |
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Depreciation and amortization |
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267 |
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282 |
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534 |
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554 |
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Commissions, booking fees and credit
card expense |
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248 |
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207 |
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482 |
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424 |
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Aircraft rentals |
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145 |
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126 |
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274 |
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250 |
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Food service |
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121 |
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123 |
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236 |
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237 |
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Special charges |
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23 |
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36 |
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Other operating expenses |
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636 |
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670 |
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1,375 |
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1,348 |
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Total operating expenses |
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5,478 |
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5,115 |
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10,844 |
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10,148 |
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Operating Income (Loss) |
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196 |
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(226 |
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(102 |
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(420 |
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Other Income (Expense) |
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Interest income |
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6 |
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9 |
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11 |
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20 |
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Interest expense |
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(209 |
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(167 |
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(418 |
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(353 |
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Interest capitalized |
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8 |
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10 |
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18 |
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20 |
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Miscellaneous net |
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(12 |
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(16 |
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(25 |
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(32 |
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(207 |
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(164 |
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(414 |
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(345 |
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Loss Before Income Taxes |
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(11 |
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(390 |
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(516 |
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(765 |
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Income tax |
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Net Loss |
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$ |
(11 |
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$ |
(390 |
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$ |
(516 |
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$ |
(765 |
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Loss Per Share |
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Basic |
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$ |
(0.03 |
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(1.39 |
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$ |
(1.55 |
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$ |
(2.74 |
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Diluted |
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$ |
(0.03 |
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$ |
(1.39 |
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$ |
(1.55 |
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$ |
(2.74 |
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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, |
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December 31, |
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2010 |
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2009 |
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Assets |
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Current Assets |
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Cash |
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$ |
197 |
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$ |
153 |
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Short-term investments |
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4,887 |
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4,246 |
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Restricted cash and short-term investments |
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461 |
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460 |
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Receivables, net |
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910 |
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768 |
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Inventories, net |
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569 |
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557 |
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Fuel derivative contracts |
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55 |
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135 |
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Other current assets |
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265 |
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323 |
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Total current assets |
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7,344 |
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6,642 |
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Equipment and Property |
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Flight equipment, net |
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12,279 |
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12,265 |
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Other equipment and property, net |
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2,236 |
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2,277 |
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Purchase deposits for flight equipment |
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481 |
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639 |
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14,996 |
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15,181 |
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Equipment and Property Under Capital Leases |
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Flight equipment, net |
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221 |
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243 |
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Other equipment and property, net |
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50 |
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52 |
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271 |
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295 |
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International slots and route authorities |
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735 |
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736 |
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Domestic
slots and airport operating and gate lease rights, less accumulated amortization, net |
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239 |
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252 |
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Other assets |
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2,300 |
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2,332 |
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$ |
25,885 |
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$ |
25,438 |
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Liabilities and Stockholders Equity (Deficit) |
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Current Liabilities |
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Accounts payable |
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$ |
1,305 |
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$ |
1,064 |
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Accrued liabilities |
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2,003 |
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2,039 |
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Air traffic liability |
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4,179 |
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3,431 |
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Fuel derivative liability |
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43 |
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80 |
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Current maturities of long-term debt |
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1,727 |
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1,024 |
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Current obligations under capital leases |
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102 |
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90 |
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Total current liabilities |
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9,359 |
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7,728 |
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Long-term debt, less current maturities |
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9,142 |
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9,984 |
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Obligations under capital leases, less current obligations |
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526 |
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599 |
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Pension and postretirement benefits |
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7,598 |
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7,397 |
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Other liabilities, deferred gains and deferred credits |
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3,190 |
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3,219 |
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Stockholders Equity (Deficit) |
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Preferred stock |
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Common stock |
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339 |
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339 |
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Additional paid-in capital |
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4,424 |
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4,399 |
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Treasury stock |
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(367 |
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(367 |
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Accumulated other comprehensive loss |
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(2,674 |
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(2,724 |
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Accumulated deficit |
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(5,652 |
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(5,136 |
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(3,930 |
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(3,489 |
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$ |
25,885 |
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$ |
25,438 |
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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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2010 |
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2009 |
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Net Cash Provided by Operating Activities |
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$ |
1,173 |
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$ |
938 |
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Cash Flow from Investing Activities: |
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Capital expenditures |
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(729 |
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(602 |
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Net (increase) decrease in short-term investments |
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(641 |
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299 |
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Net (increase) decrease in restricted cash and short-term investments |
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(1 |
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(1 |
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Proceeds from sale of equipment and property |
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(3 |
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5 |
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Other |
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47 |
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Net cash used for investing activities |
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(1,374 |
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(252 |
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Cash Flow from Financing Activities: |
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Payments on long-term debt and capital lease obligations |
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(467 |
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(1,157 |
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Proceeds from: |
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Issuance of debt and sale leaseback transactions |
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711 |
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470 |
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Other |
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1 |
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1 |
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Net cash provided by (used for) financing activities |
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245 |
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(686 |
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Net increase in cash |
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44 |
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Cash at beginning of period |
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153 |
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191 |
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Cash at end of period |
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$ |
197 |
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$ |
191 |
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The accompanying notes are an integral part of these financial statements.
-3-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation |
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The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with United States (U.S.) 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 condensed
consolidated financial statements include the accounts of AMR Corporation (AMR or the Company)
and its wholly owned subsidiaries, including (i) its principal subsidiary American Airlines,
Inc. (American) and (ii) its regional airline subsidiary, AMR Eagle Holding Corporation and
its primary subsidiaries, American Eagle Airlines, Inc. and Executive Airlines, Inc.
(collectively, AMR Eagle). The condensed consolidated financial statements also include the
accounts of variable interest entities for which the Company is the primary beneficiary. For
further information, refer to the consolidated financial statements and footnotes included in
AMRs Annual Report on Form 10-K filed on February 17, 2010 (2009 Form 10-K). |
2. Commitment And Contingencies |
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As of June 30, 2010, American had 24 Boeing 737-800 aircraft purchase commitments for the
remainder of 2010 and eight Boeing 737-800 aircraft purchase commitments in 2011. In addition
to these aircraft purchase commitments, American had firm commitments for eleven Boeing
737-800 aircraft and seven Boeing 777 aircraft scheduled to be delivered in 2013 through 2016.
In addition, American previously announced plans (subject to certain reconfirmation rights)
to acquire 42 Boeing 787-9 aircraft, with the right to acquire an additional 58 Boeing 787-9
aircraft. American has selected GE Aviation as the exclusive provider of engines for its
expected order of Boeing 787-9 aircraft. As of June 30, 2010, AMR Eagle had firm commitments
for 21 Bombardier CRJ-700 aircraft scheduled to be delivered in the remainder of 2010 and in
2011. |
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As of June 30, 2010, payments for the above purchase commitments will approximate $954 million
in the remainder of 2010, $524 million in 2011, $217 million in 2012, $463 million in 2013, $224
million in 2014, and $246 million for 2015 and beyond. These amounts are net of purchase
deposits currently held by the manufacturers. |
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The Companys future long-term debt and operating lease payments have changed as its ordered
aircraft are delivered and such deliveries have been financed. As of June 30, 2010, maturities
of long-term debt (including sinking fund requirements) for the next five years are: remainder
of 2010 $635 million, 2011 $2.4 billion, 2012 $1.7 billion, 2013 $975 million, and 2014
$1.4 billion. Future minimum lease payments required under operating leases that have initial
or remaining non-cancelable lease terms in excess of a year as of June 30, 2010, were (in
millions): remainder of 2010 $497 million, 2011
$1.1 billion, 2012 $903 million, 2013
$809 million, 2014 $669 million, and 2015 and beyond $5.5 billion. |
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The Company is in active labor contract negotiations with each of its organized labor groups.
The Company has negotiated tentative agreements with several workgroups within the Transport
Workers Union of America, AFL-CIO (TWU) including the Maintenance Control Technician group, the
Material Logistics Specialists group and the Mechanic and Related group. Agreements with these
TWU groups are subject to ratification by the relevant membership of TWU, and there are no
assurances that these tentative agreements will be ratified. These tentative agreements include
lump sum payments and contractual salary increases. If these contracts are ratified by union
membership during the third quarter of 2010, the Company will incur approximately $60 million
for lump sum payments and contractual salary increases in that period. The Company anticipates
implementing productivity improvements consistent with the agreements that will help to offset
the ongoing cost of salary increases. |
-4-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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On December 18, 2007, the European Commission issued a Statement of Objection (SO) against 26
airlines, including the Company. The SO alleges that these carriers participated in a
conspiracy to set surcharges on cargo shipments in violation of European Union (EU) law. The SO
states that, in the event that the allegations in the SO are affirmed, the Commission will
impose fines against the Company. The Company intends to vigorously contest the allegations and
findings in the SO under EU laws, and it intends to cooperate fully with all other pending
investigations. Based on the information to date, the Company has not recorded any reserve for
this exposure as of June 30, 2010. In the event that the SO is affirmed or other investigations
indicate violations of the U.S. antitrust laws or the competition laws of some other
jurisdiction, or if the Company were named and found liable in any litigation based on these
allegations, such findings and related legal proceedings could have a material adverse impact on
the Company. |
3. Depreciation and Amortization |
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Accumulated depreciation of owned equipment and property at June 30, 2010 and December 31,
2009 was $10.6 billion and $10.3 billion, respectively. Accumulated amortization of equipment
and property under capital leases at June 30, 2010 and December 31, 2009 was $555 million and
$571 million, respectively. |
4. Valuation Allowance |
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As discussed in Note 8 to the consolidated financial statements in the 2009 Form 10-K, the
Company has a valuation allowance against the full amount of its net deferred tax asset. The
Company currently provides a valuation allowance against deferred tax assets when it is more
likely than not that some portion, or all of its deferred tax assets, will not be realized.
The Companys deferred tax asset valuation allowance increased approximately $150 million
during the six months ended June 30, 2010 to $3.0 billion as of June 30, 2010, including the
impact of comprehensive income for the six months ended June 30, 2010 and changes from other
adjustments. |
|
|
Under current accounting rules, the Company is required to consider all items (including items
recorded in other comprehensive income) in determining the amount of tax benefit that results
from a loss from continuing operations and that should be allocated to continuing operations.
As a result, the Company recorded a tax benefit on the loss from continuing operations in 2009,
which was exactly offset by income tax expense on other comprehensive income. The Company
generally does not record any such tax benefit allocation in interim reporting periods as the
Company concluded the potential benefit is not considered realizable because the change in the
pension liability, a material component of other comprehensive income, is determined annually.
Thus, any such interim tax benefit allocation may subsequently be subject to reversal. |
5. Guarantees Obligations |
|
As of June 30, 2010, AMR had issued guarantees covering approximately $1.6 billion of
Americans tax-exempt bond debt (and interest thereon) and $459 million of Americans secured
debt (and interest thereon). American had issued guarantees covering approximately $887
million of AMRs unsecured debt (and interest thereon). In addition, as of June 30, 2010, AMR
and American had issued guarantees covering approximately $239 million of AMR Eagles secured
debt (and interest thereon) and AMR has issued additional guarantees covering $1.9 billion of
AMR Eagles secured debt (and interest thereon). AMR also
guarantees $166 million of
Americans leases of certain Super ATR aircraft, which are subleased to AMR Eagle. |
6. Fair Value Disclosures |
|
The Company utilizes the market approach to measure fair value for its financial assets and
liabilities. The market approach uses prices and other relevant information generated by
market transactions involving identical or comparable assets or liabilities. The Companys
short-term investments classified as Level 2 primarily utilize broker quotes in a non-active
market for valuation of these securities. The Companys fuel derivative contracts, which
consist of commodity options and collars, are valued using energy and commodity market data
which is derived by combining raw inputs with quantitative models and processes to generate
forward curves and volatilities. No changes in valuation techniques or inputs occurred during
the six months ended June 30, 2010. |
-5-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Financial assets and liabilities measured at fair value on a recurring basis are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Fair Value Measurements as of June 30, 2010 |
|
Description |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Short term investments 1, 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
67 |
|
|
$ |
67 |
|
|
$ |
|
|
|
$ |
|
|
Government agency
investments |
|
|
482 |
|
|
|
|
|
|
|
482 |
|
|
|
|
|
Repurchase investments |
|
|
1,164 |
|
|
|
|
|
|
|
1,164 |
|
|
|
|
|
Short term obligations |
|
|
3,174 |
|
|
|
|
|
|
|
3,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,887 |
|
|
|
67 |
|
|
|
4,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and short-term investments
1 |
|
|
461 |
|
|
|
461 |
|
|
|
|
|
|
|
|
|
Fuel derivative contracts 1 |
|
|
55 |
|
|
|
|
|
|
|
55 |
|
|
|
|
|
Fuel derivative liability 1 |
|
|
(43 |
) |
|
|
|
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,360 |
|
|
$ |
528 |
|
|
$ |
4,832 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Unrealized gains or losses on short-term investments, restricted cash and
short-term investments and derivatives qualifying for hedge accounting are recorded in
Accumulated other comprehensive income (loss) (OCI) at each measurement date. |
|
|
2 |
The majority of the Companys short-term investments mature in one year or less
except for $877 million of Short term obligations and $232 million of U.S. government agency
notes which have maturity dates exceeding one year. |
|
|
No significant transfers between Level 1 and Level 2 occurred during the six months ended June
30, 2010. The Companys policy regarding the recording of transfers between levels is to record
any such transfers at the end of the reporting period. |
|
|
In January 2010, the Venezuelan Government devalued its currency from 2.15 bolivars per U.S.
dollar to 4.30 bolivars per U.S. dollar and the Venezuelan economy was designated as highly
inflationary. As a result, the Company recognized a loss of $53 million related to the currency
remeasurement in January 2010. The Company does not expect any significant ongoing impact of
the currency devaluation on its system-wide operations. |
|
|
The fair values of the Companys long-term debt were estimated using quoted market prices where
available. For long-term debt not actively traded, fair values were estimated using discounted
cash flow analyses, based on the Companys current estimated incremental borrowing rates for
similar types of borrowing arrangements. |
-6-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
|
|
The carrying value and estimated fair values of the Companys long-term debt, including current
maturities, were (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
Secured variable and fixed rate
indebtedness |
|
$ |
5,241 |
|
|
$ |
4,353 |
|
|
$ |
5,553 |
|
|
$ |
4,310 |
|
Enhanced equipment trust certificates |
|
|
2,193 |
|
|
|
2,241 |
|
|
|
2,022 |
|
|
|
1,999 |
|
6.0% - 8.5% special facility revenue
bonds |
|
|
1,660 |
|
|
|
1,677 |
|
|
|
1,658 |
|
|
|
1,600 |
|
AAdvantage Miles advance purchase |
|
|
890 |
|
|
|
888 |
|
|
|
890 |
|
|
|
893 |
|
4.50% - 6.25% senior convertible
notes |
|
|
460 |
|
|
|
438 |
|
|
|
460 |
|
|
|
476 |
|
9.0% - 10.20% debentures |
|
|
214 |
|
|
|
179 |
|
|
|
214 |
|
|
|
158 |
|
7.88% - 10.55% notes |
|
|
211 |
|
|
|
179 |
|
|
|
211 |
|
|
|
181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,869 |
|
|
$ |
9,955 |
|
|
$ |
11,008 |
|
|
$ |
9,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Pension and Other Postretirement Benefits |
|
The following tables provide the components of net periodic benefit cost for the three and
six months ended June 30, 2010 and 2009 (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
91 |
|
|
$ |
83 |
|
|
$ |
184 |
|
|
$ |
167 |
|
Interest cost |
|
|
184 |
|
|
|
178 |
|
|
|
369 |
|
|
|
356 |
|
Expected return on assets |
|
|
(148 |
) |
|
|
(141 |
) |
|
|
(297 |
) |
|
|
(284 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
3 |
|
|
|
3 |
|
|
|
7 |
|
|
|
7 |
|
Unrecognized net loss |
|
|
39 |
|
|
|
36 |
|
|
|
76 |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
169 |
|
|
$ |
159 |
|
|
$ |
339 |
|
|
$ |
319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-7-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retiree Medical and Other Benefits |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
15 |
|
|
$ |
15 |
|
|
$ |
30 |
|
|
$ |
29 |
|
Interest cost |
|
|
41 |
|
|
|
45 |
|
|
|
83 |
|
|
|
89 |
|
Expected return on assets |
|
|
(5 |
) |
|
|
(4 |
) |
|
|
(9 |
) |
|
|
(7 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
(5 |
) |
|
|
(2 |
) |
|
|
(10 |
) |
|
|
(4 |
) |
Unrecognized net (gain) loss |
|
|
(3 |
) |
|
|
(4 |
) |
|
|
(5 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
43 |
|
|
$ |
50 |
|
|
$ |
89 |
|
|
$ |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is required to make minimum contributions to its defined benefit pension plans under
the minimum funding requirements of the Employee Retirement Income Security Act (ERISA), the
Pension Funding Equity Act of 2004 and the Pension Protection Act of 2006. On June 25, 2010,
President Obama signed the Preservation of Access to Care for Medical Beneficiaries and Pension
Relief Act of 2010 (the Relief Act), H.R. 3962, into law. The Relief Act provides for
temporary, targeted funding relief (subject to certain terms and conditions) for single employer
and multiemployer pension plans that suffered significant losses in asset value due to the steep
market slide in 2008. Under the Relief Act, the Companys 2010 required minimum contributions
to its defined benefit pension plans have been reduced from $525 million to approximately $460
million. On July 15, 2010, the Company contributed an additional $72 million to its defined
benefit pension plans, for a total of $144 million in 2010 as of the date of this filing. |
8. Reorganization charges |
|
As a result of the revenue environment, high fuel prices and the Companys restructuring
activities, including its capacity reductions, the Company has recorded a number of charges
during the last few years. In 2008 and 2009, the Company announced capacity reductions due to
unprecedented high fuel costs at that time and the other challenges facing the industry. In
connection with these capacity reductions, the Company incurred special charges related to
aircraft and certain other charges. |
|
|
The following table summarizes the components of the Companys special charges, the remaining
accruals for these charges and the capacity reduction related charges (in millions) as of June
30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft |
|
|
Facility |
|
|
|
|
|
|
Charges |
|
|
Exit Costs |
|
|
Total |
|
Remaining accrual
at December 31,
2009 |
|
$ |
155 |
|
|
$ |
20 |
|
|
$ |
175 |
|
Capacity reduction
charges |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash charges |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments |
|
|
(2 |
) |
|
|
1 |
|
|
|
(1 |
) |
Payments |
|
|
(52 |
) |
|
|
(1 |
) |
|
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
Remaining accrual
at June
30, 2010 |
|
$ |
101 |
|
|
$ |
20 |
|
|
$ |
121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash outlays related to the accruals for aircraft charges and facility exit costs will occur
through 2017 and 2018, respectively. |
-8-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
9. Derivative Financial Instruments |
|
As part of the Companys risk management program, it uses a variety of financial instruments,
primarily heating oil option and collar contracts, as cash flow hedges to mitigate commodity
price risk. The Company does not hold or issue derivative financial instruments for trading
purposes. As of June 30, 2010, the Company had fuel derivative contracts outstanding covering
32 million barrels of jet fuel that will be settled over the next 24 months. A deterioration
of the Companys liquidity position may negatively affect the Companys ability to hedge fuel
in the future. |
|
|
For the three and six months ended June 30, 2010, the Company recognized an increase of
approximately $64 million and $114 million, respectively, in fuel expense on the accompanying
consolidated statements of operations related to its fuel hedging agreements, including the
ineffective portion of the hedges. For the three and six months ended June 30, 2009, the
Company recognized an increase of approximately $197 million and $465 million, respectively,
in fuel expense related to its fuel hedging agreements including the ineffective portion of
the hedges. The net fair value of the Companys fuel hedging agreements at June 30, 2010 and
December 31, 2009, representing the amount the Company would receive upon termination of the
agreements (net of settled contract assets), totaled $22 million and $57 million,
respectively, which excludes a payable related to contracts that settled in the last month of
each respective reporting period. |
|
|
The impact of cash flow hedges on the Companys consolidated financial statements is depicted
below (in millions): |
|
|
|
Fair Value of Aircraft Fuel Derivative Instruments (all cash flow hedges) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives as of |
|
Liability Derivatives as of |
June 30, 2010 |
|
December 31, 2009 |
|
June 30, 2010 |
|
December 31, 2009 |
Balance |
|
|
|
Balance |
|
|
|
Balance |
|
|
|
Balance |
|
|
Sheet |
|
Fair |
|
Sheet |
|
Fair |
|
Sheet |
|
Fair |
|
Sheet |
|
Fair |
Location |
|
Value |
|
Location |
|
Value |
|
Location |
|
Value |
|
Location |
|
Value |
Fuel derivative
contracts
|
|
$55
|
|
Fuel derivative
contracts
|
|
$126
|
|
Fuel derivative
liability
|
|
$43
|
|
Accrued liabilities
|
|
$71 |
|
|
Effect of Aircraft Fuel Derivative Instruments on Statements of Operations (all cash flow hedges) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain |
|
Amount of Gain (Loss) |
|
Location of |
|
Amount of Gain |
Amount of Gain (Loss) |
|
(Loss) |
|
Reclassified from |
|
Gain (Loss) |
|
(Loss) Recognized in |
Recognized in OCI on |
|
Reclassified from |
|
Accumulated OCI into |
|
Recognized in |
|
Income on Derivative 2 |
Derivative1 as of June 30, |
|
Accumulated OCI |
|
Income 1 for the six months ended June 30, |
|
Income on |
|
for the six months ended June 30, |
2010 |
|
2009 |
|
into Income 1 |
|
2010 |
|
2009 |
|
Derivative 2 |
|
2010 |
|
2009 |
|
$(123)
|
|
$127
|
|
Aircraft Fuel
|
|
$(103)
|
|
$(471)
|
|
Aircraft Fuel
|
|
$(11)
|
|
$6 |
-9-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
Location of |
|
Amount of Gain |
Reclassified from |
|
Gain (Loss) |
|
(Loss) in Recognized |
Accumulated OCI into |
|
Recognized in |
|
Income on Derivative |
Income 1 for the three months ended June 30, |
|
Income on |
|
2 for the three months ended June 30, |
2010 |
|
2009 |
|
Derivative 2 |
|
2010 |
|
2009 |
|
$(52)
|
|
$(200)
|
|
Aircraft Fuel
|
|
$(12)
|
|
$3 |
|
|
|
|
|
1 |
|
Effective portion of gain (loss) |
|
|
2 |
|
Ineffective portion of gain (loss) |
|
|
The Company is also exposed to credit losses in the event of non-performance by counterparties
to these financial instruments, and although no assurances can be given, the Company does not
expect any counterparty to fail to meet its obligations. The credit exposure related to these
financial instruments is represented by the fair value of contracts with a positive fair value
at the reporting date, reduced by the effects of master netting agreements. To manage credit
risks, the Company selects counterparties based on credit ratings, limits its exposure to a
single counterparty under defined guidelines, and monitors the market position of the program
and its relative market position with each counterparty. The Company also maintains
industry-standard security agreements with a number of its counterparties which may require the
Company or the counterparty to post collateral if the value of selected instruments exceeds
specified mark-to-market thresholds or upon certain changes in credit ratings. |
|
|
The Company includes changes in the fair value of certain derivative financial instruments that
qualify for hedge accounting and unrealized gains and losses on available-for-sale securities
in comprehensive income. For the three month periods ended June 30, 2010 and 2009,
comprehensive gain (loss) was ($50) million and $99 million, respectively, and for the six
month periods ended June 30, 2010 and 2009, comprehensive loss was $(466) million and $(87)
million, respectively. The difference between net earnings (loss) and comprehensive income
(loss) for the three and six month periods ended June 30, 2010 and 2009 is due primarily to the
accounting for the Companys derivative financial instruments and the actuarial loss on the
pension benefit obligation of the Companys pension plans. |
-10-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
10. Earnings Per Share |
|
The following table sets forth the computations of basic and diluted earnings (loss) per
share (in millions, except per share data): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) numerator for basic
earnings (loss) per share |
|
$ |
(11 |
) |
|
$ |
(390 |
) |
|
$ |
(516 |
) |
|
$ |
(765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss) per
share weighted-average shares |
|
|
333 |
|
|
|
280 |
|
|
|
333 |
|
|
|
279 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior convertible notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee options and shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed treasury shares purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings (loss) per
share adjusted weighted-average shares |
|
|
333 |
|
|
|
280 |
|
|
|
333 |
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
(0.03 |
) |
|
$ |
(1.39 |
) |
|
$ |
(1.55 |
) |
|
$ |
(2.74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share |
|
$ |
(0.03 |
) |
|
$ |
(1.39 |
) |
|
$ |
(1.55 |
) |
|
$ |
(2.74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following were excluded from the calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes, employee stock options and
deferred stock because inclusion would be
anti-dilutive |
|
|
58 |
|
|
|
|
|
|
|
58 |
|
|
|
5 |
|
Employee stock options because the options
exercise prices were greater than the average
market price of shares |
|
|
13 |
|
|
|
27 |
|
|
|
11 |
|
|
|
21 |
|
-11-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
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 Companys expectations or beliefs concerning future events.
When used in this document and in documents incorporated herein by reference, the words expects,
plans, anticipates, indicates, believes, forecast, guidance, outlook, may, will,
should, seeks, targets and similar expressions are intended to identify forward-looking
statements. Similarly, statements that describe the Companys objectives, plans or goals, or
actions the Company may take in the future, are forward-looking statements. Forward-looking
statements include, without limitation, the Companys expectations concerning operations and
financial conditions, including changes in capacity, revenues, and costs; future financing plans
and needs; the amounts of its unencumbered assets and other sources of liquidity; fleet plans;
overall economic and industry conditions; plans and objectives for future operations; regulatory
approvals and actions, including the Companys applications for antitrust immunity with other
oneworld alliance members; and the impact on the Company of its results of operations in recent
years and the sufficiency of its financial resources to absorb that impact. In particular, this
report includes an estimate of revenue improvement and cost savings associated with certain Company
initiatives, a statement regarding when those benefits will be realized, and a statement regarding
the Companys expectations regarding the narrowing of its labor cost disadvantage, each of which is
a forward-looking statement. Guidance given in this report regarding capacity, fuel consumption,
fuel prices, fuel hedging, and unit costs, and statements regarding expectations of regulatory
approval of the Companys applications for antitrust immunity with other oneworld members are also
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 the Companys actual
results to differ materially from the Companys expectations. The following factors could cause
the Companys actual results to differ materially from those expressed in forward-looking
statements: the materially weakened financial condition of the Company, resulting from its
significant losses in recent years; very weak demand for air travel and lower investment asset
returns resulting from the severe global economic downturn; the Companys need to raise substantial
additional funds and its ability to do so on acceptable terms; the ability of the Company to
generate additional revenues and reduce its costs; continued high and volatile fuel prices and
further increases in the price of fuel, and the availability of fuel; the Companys substantial
indebtedness and other obligations; the ability of the Company to satisfy certain covenants and
conditions in certain of its financing and other agreements; changes in economic and other
conditions beyond the Companys control, and the volatile results of the Companys operations; the
fiercely and increasingly competitive business environment faced by the Company; potential industry
consolidation and alliance changes; competition with reorganized carriers; low fare levels by
historical standards and the Companys reduced pricing power; changes in the Companys corporate or
business strategy; extensive government regulation of the Companys business; conflicts overseas or
terrorist attacks; uncertainties with respect to the Companys international operations; outbreaks
of a disease (such as SARS, avian flu or the H1N1 virus) that affects travel behavior; labor costs
that are higher than those of the Companys competitors; uncertainties with respect to the
Companys relationships with unionized and other employee work groups; increased insurance costs
and potential reductions of available insurance coverage; the Companys ability to retain key
management personnel; potential failures or disruptions of the Companys computer, communications
or other technology systems; losses and adverse publicity resulting from any accident involving the
Companys aircraft; interruptions or disruptions in service at one or more of the Companys primary
market airports; the heavy taxation of the airline industry; changes in the price of the Companys
common stock; and the ability of the Company to reach acceptable agreements with third parties.
Additional information concerning these and other factors is contained in the Companys Securities
and Exchange Commission filings, including the 2009 Form 10-K.
-12-
Overview
The Company recorded a net loss of $11 million in the second quarter of 2010 compared to a net loss
of $390 million in the same period last year. The Companys improved performance is primarily the
result of higher unit revenues (passenger revenue per available seat mile). Mainline passenger
unit revenues increased 16.8 percent for the second quarter due to a 2.0 point load factor increase
and a 14.0 percent increase in passenger yield (passenger revenue per passenger mile) compared to
the same period in 2009. Although the Company recorded significant year-over-year unit revenue
improvement in the second quarter of 2010, passenger yields remain insufficient to drive positive
net earnings. The Company believes this is the result of a fragmented industry with numerous
competitors, excess capacity and pricing transparency resulting from the use of the Internet and
other factors. The Company believes that its limited pricing power could persist indefinitely.
The increases in comparative second quarter revenue were partially offset by a significant
year-over-year increase in fuel prices from an average of $1.90 per gallon in the second quarter of
2009 to an average of $2.37 per gallon in the second quarter of 2010, including the effects of
hedging. The price increase resulted in $334 million in incremental year-over-year fuel expense in
the three months ended June 30, 2010 (based on the year-over-year increase in the average price per
gallon multiplied by gallons consumed).
In addition, the Companys North Atlantic operations in the second quarter 2010 were impacted by
the eruption of the Icelandic volcano which began in April. However, flight disruptions did not
have a material adverse impact on the Companys results. Comparatively, during the second quarter
of 2009, there was an outbreak of the H1N1 Influenza virus which had an estimated $50 to $80
million adverse revenue impact, primarily on operations to and from Mexico. Also in the second
quarter 2009, the Company incurred approximately $70 million in non-recurring charges related to
the sale of certain aircraft and the grounding of leased Airbus A300 aircraft prior to lease
expiration.
In late 2009, the Company unveiled a new business plan FlightPlan 2020. FlightPlan 2020 is a
strategic framework developed to secure the Companys future by focusing on what will be required
to succeed in the airline business over the next decade. It establishes the Companys priorities
and a clear path to better position the Company to meet the challenges of the coming years. This
plan for achieving sustained profitability has five tenets: (i) Invest Wisely, (ii) Earn Customer
Loyalty, (iii) Strengthen and Defend our Global Network, (iv) Be a Good Place for Good People and
(v) Fly Profitably.
Under FlightPlan 2020, the Company launched its network strategy that focuses resources in its
cornerstone markets of Dallas/Fort Worth, Chicago, Miami, Los Angeles and New York, and has
continued to execute its fleet renewal and replacement plan. Further, the Company continues to
pursue its strategy to form cooperative agreements with oneworld members and other airlines. On
July 14, 2010 and July 20, 2010, American obtained clearance from the European Commission (EC) and
approval by the Department of Transportation (DOT), respectively, for antitrust immunity (ATI) for
its planned cooperation with British Airways, Iberia, Finnair and Royal Jordanian. In addition,
the Company is awaiting approval by regulatory entities of Americans joint business agreement
(JBA) with Japan Airlines (JAL).
Regulatory conditions for ATI approval for the British Airways, Iberia, Finnair and Royal Jordanian
cooperative agreement include obligations to lease to other carriers up to seven takeoff and landing slot pairs at
London Heathrow and up to three John F. Kennedy airport operational authorities, depending on
market conditions. In addition to satisfaction of those conditions, implementation of the JBA
requires successful negotiation of certain detailed financial and
commercial arrangements among the carriers, and
obtaining other approvals. American expects to begin implementing the JBA in the fourth quarter of
2010. No assurances can be given as to any arrangements that may ultimately be implemented or any
benefits the Company may derive from such arrangements.
The Companys and JALs joint application to DOT for ATI on certain routes and joint notification
to the Ministry of Land Infrastructure, Transport and Tourism of Japan (MLIT) is pending approval.
Implementation of the JBA with JAL is also subject to successful negotiation of certain detailed
financial and commercial arrangements and other approvals. American expects to begin implementing
the JBA with JAL in 2011. No assurances can be given as to any arrangements that may
ultimately be implemented or any benefits that the Company may derive from such arrangements.
-13-
The Companys agreements for the previously announced commercial collaboration in New York and
Boston with JetBlue commenced on July 20, 2010. The agreement provides customers with convenient,
interline service in non-overlapping markets, letting customers connect between 14 of Americans
international destinations from New Yorks John F. Kennedy International Airport and Bostons Logan
Airport and 18 domestic cities flown from those two airports by JetBlue. Further, American
announced it will expand its relationship with JetBlue in the coming
months, so that AAdvantage
members and members of JetBlues customer loyalty program will
be able to earn AAdvantage miles or
JetBlue points, respectively, when they fly only on American and JetBlue cooperative interline
routes. Under the terms of the agreements for commercial collaboration, American intends to
transfer eight slot pairs at Ronald Reagan National Airport in Washington D.C. (currently owned by
American) and one slot pair at White Plains, New York (currently owned by AMR Eagle) to JetBlue,
and JetBlue intends to transfer twelve slot pairs at JFK to American beginning in the fourth
quarter of 2010.
The Company currently estimates that the implementation of its cornerstone strategy, the
implementation of the Companys proposed JBAs with British Airways/Iberia and JAL, and various
other alliance and network activities will result in incremental revenues and cost savings of over
$500 million per year. The Company expects that it will realize the majority of these incremental
revenues and cost savings in 2011, and the remainder by year end 2012. This estimate is based on a
number of assumptions that are inherently uncertain, and the Companys ability to realize these
benefits depends on various factors, some of which are beyond the Companys control, such as
obtaining regulatory approvals of its proposed JBAs and other factors referred to above in
Forward-Looking Information.
The Company is in active labor contract negotiations with each of its organized labor groups. The
Company has negotiated tentative agreements with several workgroups within the TWU including the
Maintenance Control Technician group, the Material Logistics Specialists group and the Mechanic and
Related group. Agreements with these TWU groups are subject to ratification by the relevant
membership of TWU, and there are no assurances that these tentative agreements will be ratified.
These tentative agreements include lump sum payments and contractual salary increases. If these
contracts are ratified by union membership during the third quarter 2010, the Company will incur
approximately $60 million for lump sum payments and contractual salary increases in that period.
Under these current tentative agreements, the Company anticipates productivity increases in future
quarters. Mediated negotiation continues with other TWU workgroups, the Allied Pilots Association
(APA) and the Association of Professional Flight Attendants (APFA).
Based on analysis of airline industry labor contracts, the Company estimates that at the beginning
of 2010, Americans labor cost disadvantage (the amount by which its labor costs exceed what such
costs would be if they were determined based on other network carrier labor contracts) was
approximately $600 million per year. The Company expects this gap to narrow as open industry labor
contracts are settled. This expectation is based on a number of assumptions, the validity of which
cannot be assured. The airline industry labor contract negotiation process is inherently uncertain
and the results of labor contract negotiations are difficult to predict.
In March of 2010, the President signed into law comprehensive health care reform legislation under
the Patient Protection and Affordable Care Act (HR 3590) and the Health Care Education and
Affordability Reconciliation Act (HR 4872) (the Acts). The Acts contain provisions potentially
impacting the Companys cost and accounting for active employee and retiree medical benefits in
future periods. However, according to the recently released interim final regulations promulgated
under the Acts, the Companys retiree medical benefits will be exempt from many of the mandates of
the Acts under a grandfathering provision. Thus, under the Companys current assessment of the
cost and accounting implications of the Acts, no significant impact to its financial statements is
expected.
In June 2010, the Company reiterated its intent to evaluate the possible divestiture of AMR Eagle,
its wholly-owned regional carrier. AMR Eagle owns two regional airlines American Eagle Airlines,
Inc (American Eagle) and Executive Airlines, Inc. (Executive). American Eagle feeds American
Airlines hubs throughout North America, and its affiliate, Executive, carries the American Eagle
name throughout the Bahamas and the Caribbean from bases in Miami and San Juan, Puerto Rico. No
prediction can be made as to the outcome of any such evaluation, and if AMR were to decide to
pursue a divestiture of AMR Eagle, no prediction can be made as to whether any such divestiture
will be completed or the impact of any such divestiture on AMR.
On July
21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer
Protection Act (The Dodd-Frank Act). The Dodd-Frank Act contains provisions which may impact the
Company, but those effects cannot be predicted at this time. For example, our fuel hedging
activities may be affected by the Act and regulations promulgated under the Act.
-14-
The Companys ability to become profitable and its ability to continue to fund its obligations on
an ongoing basis will depend on a number of factors, many of which are largely beyond the Companys
control. Certain risk factors that affect the Companys business and financial results are
discussed in the Risk Factors listed in Item 1A in the 2009 Form 10-K. In addition, most of the
Companys largest domestic competitors and several smaller carriers have filed for bankruptcy in
previous years and have used this process to significantly reduce contractual labor and other
costs. In order to remain competitive and to improve its financial condition, the Company must
continue to take steps to generate additional revenues and to reduce its costs. Although the
Company has a number of initiatives underway to address its cost and revenue challenges, some of
these initiatives involve changes to the Companys business which it may be unable to implement. It
has also become increasingly difficult to identify and implement significant revenue enhancement
and cost savings initiatives. The adequacy and ultimate success of the Companys initiatives to
generate additional revenues and reduce costs cannot be assured. Moreover, whether the Companys
initiatives will be adequate or successful depends in large measure on factors beyond its control,
notably the overall industry environment, including passenger demand, yield and industry capacity
growth, and fuel prices. It will be very difficult for the Company to continue to fund its
obligations on an ongoing basis, and to return to profitability, if the overall industry revenue
environment does not improve substantially or if fuel prices were to persist at high levels for an
extended period.
LIQUIDITY AND CAPITAL RESOURCES
Significant Indebtedness and Future Financing
The Company remains heavily indebted and has significant obligations (including substantial pension
funding obligations), as described more fully under Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations in the Companys 2009 Form 10-K. Indebtedness is
a significant risk to the Company as discussed in the Risk Factors listed in Item 1A in the 2009
Form 10-K. During the last few years, the Company raised substantial financing to fund capital
commitments (mainly for aircraft and ground properties), debt maturities, and employee pension
obligations, and to bolster its liquidity. To meet the Companys commitments, to maintain
sufficient liquidity and because the Company has significant debt, lease and other obligations in
the next several years, including commitments to purchase aircraft, as well as substantial pension
funding obligations (refer to Contractual Obligations in Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations in the 2009 Form 10-K), the Company will
need access to substantial additional funding. An inability to obtain necessary additional funding
on acceptable terms would have a material adverse impact on the Company and on its ability to
sustain its operations.
As of June 30, 2010, the Company is required to make scheduled principal payments of approximately
$529 million on long-term debt and approximately $26 million in payments on capital leases, and the
Company expects to spend approximately $1.3 billion on capital expenditures, including aircraft
commitments, for the remainder of 2010. In addition, the global economic downturn, rising fuel
prices, the possibility of being required to post reserves under credit card processing agreements,
and the obligation to post cash collateral on fuel hedging contracts and fund pension plan
contributions, among other things, may in the future negatively impact the Companys liquidity.
The Companys substantial indebtedness and other obligations have important consequences. For
example, they: (i) limit the Companys ability to obtain additional funding for working capital,
capital expenditures, acquisitions, investments and general corporate purposes, and adversely
affect the terms on which such funding could be obtained; (ii) require the Company to dedicate a
substantial portion of its cash flow from operations to payments on its indebtedness and other
obligations, thereby reducing the funds available for other purposes; (iii) make the Company more
vulnerable to economic downturns and catastrophic external events; and (iv) limit the Companys
ability to withstand competitive pressures and reduce its flexibility in responding to changing
business and economic conditions.
-15-
The Companys possible remaining financing sources primarily include: (i) a very limited amount of
additional secured aircraft debt or sale leaseback transactions involving owned aircraft; (ii) debt
secured by other assets; (iii) securitization of future operating receipts; (iv) the sale or
monetization of certain assets; (v) unsecured debt; and (vi) issuance of equity or equity-like
securities. Besides unencumbered aircraft, the Companys most likely sources of liquidity include
the financing of route authorities, takeoff and landing slots, spare parts, and the sale or
financing of certain of AMRs business units and subsidiaries, such as AMR Eagle. The Companys
ability to obtain future financing is limited by the value of its unencumbered assets. Almost all
of the Companys aircraft assets (including aircraft eligible for the benefits of Section 1110 of
the U.S. Bankruptcy Code) are encumbered. Also, the market value of these aircraft assets has
declined in recent years, and may continue to decline. The Company believes it has approximately
$2 billion in assets that could be used as possible financing sources as of the date of this
filing. However, many of these assets may be difficult to finance, and the availability and level
of the financing sources described above cannot be assured.
As of June 30, 2010, American had 24 Boeing 737-800 aircraft purchase commitments for the remainder
of 2010 and eight Boeing 737-800 aircraft purchase commitments in 2011. In addition to these
aircraft purchase commitments, American had firm commitments for eleven Boeing 737-800 aircraft and
seven Boeing 777 aircraft scheduled to be delivered in 2013 through 2016. In addition, American
previously announced plans (subject to certain reconfirmation rights) to acquire 42 Boeing 787-9
aircraft, with the right to acquire an additional 58 Boeing 787-9 aircraft. American has selected
GE Aviation as the exclusive provider of engines for its expected order of Boeing 787-9 aircraft.
As of June 30, 2010, AMR Eagle had firm commitments for 21 Bombardier CRJ-700 aircraft scheduled to
be delivered in the remainder of 2010 and in 2011.
As of June 30, 2010, payments for the above purchase commitments will approximate $954 million in
the remainder of 2010, $524 million in 2011, $217 million in 2012, $463 million in 2013, $224
million in 2014, and $246 million for 2015 and beyond. These amounts are net of purchase deposits
currently held by the manufacturers.
On July 21, 2010, the Company entered into an amendment to Purchase Agreement No. 1977 with the
Boeing Company to exercise rights to acquire additional Boeing 737-800 aircraft. Pursuant to the
amendment, American exercised rights to purchase 35 Boeing 737-800 aircraft for delivery in 2011
and 2012. The Companys total purchase commitments are expected to increase to approximately $4
billion at the end of the third quarter 2010, reflecting this transaction and aircraft deliveries
during that period. In conjunction with this transaction, American has arranged for backstop
financing of the additional Boeing 737-800 aircraft deliveries, subject to certain terms and
conditions.
In 2008, the Company entered into a new purchase agreement with Boeing for the acquisition of 42
firm Boeing 787-9 aircraft and purchase rights to acquire up to 58 additional B787 aircraft. Per
the purchase agreement, the first such aircraft was scheduled to be delivered in 2012, and the last
firm aircraft was scheduled to be delivered in 2018 with deliveries of additional aircraft, if any,
scheduled between 2015 and 2020. In July 2010, the Company and Boeing agreed upon a revised
delivery schedule due to the impact of the overall Boeing 787 program delay on Americans delivery
positions. The first aircraft is currently scheduled to be delivered in 2014, and the last firm
aircraft is scheduled to be delivered in 2018 with deliveries of additional aircraft, if any,
scheduled between 2016 and 2021. Additionally, the revised delivery schedule includes terms and
conditions consistent with the original agreement and allows the Company the confirmation rights
described below.
Under the current 787-9 purchase agreement, except as described below, American will not be
obligated to purchase a 787-9 aircraft unless it gives Boeing notice confirming its election to do
so at least 18 months prior to the scheduled delivery date for that aircraft. If American does not
give that notice with respect to an aircraft, the aircraft will no longer be subject to the 787-9
purchase agreement. These confirmation rights may be exercised until a specified date, May 1, 2014
under the current agreement, provided that those rights will terminate earlier if American reaches
a collective bargaining agreement with its pilots union that includes provisions enabling American
to utilize the 787-9 to Americans satisfaction in the operations desired by American, or if
American confirms its election to purchase any of the initial 42 787-9 aircraft. While there can
be no assurances, American expects that it will have reached an agreement as described above with
its pilots union prior to the first notification date. In either of those events, American would
become obligated to purchase all of the initial 42 aircraft then subject to the purchase
agreement. If neither of those events occurs prior to May 1, 2014 under the current agreement,
then on that date American may elect to purchase all of the initial 42 aircraft then subject to the
purchase agreement, and if it does not elect to do so, the purchase agreement will terminate in its
entirety.
-16-
The Companys continued aircraft replacement strategy, and its execution of that strategy, will
depend on such factors as future economic and industry conditions and the financial condition of
the Company.
Credit Card Processing and Other Reserves
American has agreements with a number of credit card companies and processors to accept credit
cards for the sale of air travel and other services. Under certain of these agreements, the related
credit card processor may hold back a reserve from Americans credit card receivables following the
occurrence of certain events, including the failure of American to maintain certain levels of
liquidity (as specified in each agreement).
Under such agreements, the amount of the reserve that may be required generally is based on the
processors exposure to the Company under the applicable agreement and, in the case a reserve is
required because of Americans failure to maintain a certain level of liquidity, the amount of such
liquidity. As of June 30, 2010, the Company was not required to maintain any reserve under such
agreements. If circumstances were to occur that would allow the credit card processor to require
the Company to maintain a reserve, the Companys liquidity would be negatively impacted.
Pension Funding Obligation
The Company is required to make minimum contributions to its defined benefit pension plans under
the minimum funding requirements of ERISA, the Pension Funding Equity Act of 2004 and the Pension
Protection Act of 2006. On June 25, 2010, President Obama signed the Preservation of Access to Care
for Medical Beneficiaries and Pension Relief Act of 2010 (the Relief Act), H.R. 3962, into law.
The Relief Act provides for temporary, targeted funding relief (subject to certain terms and
conditions) for single employer and multiemployer pension plans that suffered significant losses in
asset value due to the steep market slide in 2008. Under the Relief Act, the Companys 2010
minimum contributions to its defined benefit pension plans have been reduced from $525 million to
approximately $460 million. On July 15, 2010, the Company contributed an additional $72 million to
its defined benefit pension plans, for a total of $144 million in 2010 as of the date of this
filing.
Cash Flow Activity
At June 30, 2010, the Company had $5.1 billion in unrestricted cash and short-term investments,
which is an increase of $685 million from the balance as of December 31, 2009. Net cash provided by
operating activities in the six-month period ended June 30, 2010 was $1.2 billion, which was
comparable to $938 million over the same period in 2009, which reflects an improved operating
environment in 2010.
The Company made scheduled debt and capital lease payments of $467 million and invested $729
million in capital expenditures in the first six months of 2010. Capital expenditures primarily
consisted of new aircraft and certain aircraft modifications.
The Company also continued to enter into previously arranged debt and sale leasebacks upon the
delivery of new aircraft in the six months ended June 30, 2010. In the first and second quarters
of 2010, AMR received delivery of 22 new aircraft financed through $711 million of various
previously announced arrangements.
In the past, the Company has from time to time refinanced, redeemed or repurchased its debt and
taken other steps to reduce its debt or lease obligations or otherwise improve its balance sheet.
Going forward, depending on market conditions, its cash positions and other considerations, the
Company may continue to take such actions.
War-Risk Insurance
The U.S. government has agreed to provide commercial war-risk insurance for U.S. based airlines
through August 31, 2010, covering losses to employees, passengers, third parties and aircraft. If
the U.S. government were to cease providing such insurance in whole or in part, it is likely that
the Company could obtain comparable coverage in the commercial market, but the Company would incur
substantially higher premiums and more restrictive terms. There can be no assurance that
comparable war-risk coverage will be available in the commercial market. If the Company is unable
to obtain adequate war-risk coverage at commercially reasonable rates, the Company would be
adversely affected.
-17-
RESULTS OF OPERATIONS
For the Three Months Ended June 30, 2010 and 2009
Revenues
The Companys revenues increased approximately $785 million, or 16.0 percent, to $5.7 billion in
the second quarter of 2010 from the same period last year. Americans passenger revenues increased
by 16.4 percent, or $602 million, on approximately a one-half percent decrease in capacity
(available seat mile) (ASM). Americans passenger load factor increased by approximately 2.0
points to 83.9 percent, while passenger yield increased by 14.0 percent to 13.28 cents. This
resulted in an increase in passenger revenue per available seat mile (RASM) of 16.8 percent to
11.14 cents. Following is additional information regarding Americans domestic and international
RASM and capacity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
|
|
RASM |
|
Y-O-Y |
|
ASMs |
|
Y-O-Y |
|
|
(cents) |
|
Change |
|
(billions) |
|
Change |
DOT Domestic |
|
|
11.20 |
|
|
|
14.4 |
% |
|
|
23.4 |
|
|
|
0.0 |
% |
International |
|
|
11.05 |
|
|
|
20.9 |
|
|
|
15.0 |
|
|
|
(1.0 |
) |
DOT Latin America |
|
|
10.90 |
|
|
|
13.8 |
|
|
|
7.2 |
|
|
|
2.7 |
|
DOT Atlantic |
|
|
11.36 |
|
|
|
28.3 |
|
|
|
6.0 |
|
|
|
(6.2 |
) |
DOT Pacific |
|
|
10.57 |
|
|
|
25.3 |
|
|
|
1.8 |
|
|
|
3.6 |
|
The Companys Regional Affiliates include two wholly owned subsidiaries, American Eagle Airlines,
Inc. and Executive Airlines, Inc. (collectively, AMR Eagle), and an independent carrier with which
American has a capacity purchase agreement, Chautauqua Airlines, Inc. (Chautauqua).
Regional Affiliates passenger revenues, which are based on industry standard proration agreements
for flights connecting to American flights, increased $87 million, or 16.9 percent, to $600 million
as a result of higher yield. Regional Affiliates traffic increased 2.2 percent to 2.2 billion
revenue passenger miles (RPMs), on a capacity increase of 2.5 percent to 3.0 billion ASMs,
resulting in a nearly static passenger load factor at 74.5 percent.
Other
revenues increased 10.6 percent, or $60 million, to $625 million due to increases in baggage
and AAdvantage partner revenues.
-18-
Operating Expenses
The Companys total operating expenses increased 7.1 percent, or $363 million, to $5.5 billion in
the second quarter of 2010 compared to the second quarter of 2009. The Companys operating
expenses per ASM in the second quarter of 2010 increased 7.3 percent to 13.23 cents compared to the
second quarter of 2009. These increases are due primarily to increased fuel prices in the second
quarter of 2010 compared to the second quarter of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
|
(in millions) |
|
Ended |
|
|
Change |
|
|
Percentage |
|
Operating Expenses |
|
June 30, 2010 |
|
|
from 2009 |
|
|
Change |
|
Wages, salaries and benefits |
|
$ |
1,714 |
|
|
|
16 |
|
|
|
0.9 |
% |
Aircraft fuel |
|
|
1,655 |
|
|
|
321 |
|
|
|
24.1 |
(a) |
Other rentals and landing fees |
|
|
352 |
|
|
|
14 |
|
|
|
4.1 |
|
Maintenance, materials and repairs |
|
|
340 |
|
|
|
26 |
|
|
|
8.3 |
(b) |
Depreciation and amortization |
|
|
267 |
|
|
|
(15 |
) |
|
|
(5.3 |
) |
Commissions, booking fees and
credit card expense |
|
|
248 |
|
|
|
41 |
|
|
|
19.8 |
(c) |
Aircraft rentals |
|
|
145 |
|
|
|
19 |
|
|
|
15.1 |
|
Food service |
|
|
121 |
|
|
|
(2 |
) |
|
|
(1.6 |
) |
Special charges |
|
|
|
|
|
|
(23 |
) |
|
|
(100.0 |
) |
Other operating expenses |
|
|
636 |
|
|
|
(34 |
) |
|
|
(5.1 |
) |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
5,478 |
|
|
|
363 |
|
|
|
7.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Aircraft fuel expense increased primarily due to a 25.3 percent increase in the
Companys price per gallon of fuel (net of the impact of fuel hedging). The Company
recorded $64 million and $197 million in net losses on its fuel hedging contracts for
the three months ended June 30, 2010 and June 30, 2009, respectively. |
|
|
(b) |
Maintenance, materials and repairs increased due to the timing of materials and
repairs expenses. |
|
|
(c) |
Commissions, booking fees and credit card expense increased 19.8% primarily in
conjunction with the 16.0% increase in the Companys revenues. |
Other Income (Expense)
Interest income decreased $3 million due to a decrease in interest rates. Interest expense
increased $42 million as a result of an increase in the Companys long-term debt balance.
Income Tax
The Company did not record a net tax provision (benefit) associated with its second quarter 2010 or
2009 net loss due to the Company providing a valuation allowance, as discussed in Note 4 to the
condensed consolidated financial statements.
-19-
Operating Statistics
The following table provides statistical information for American and Regional Affiliates for the
three months ended June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
2010 |
|
2009 |
American Airlines, Inc. Mainline Jet Operations |
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) |
|
|
32,215 |
|
|
|
31,564 |
|
Available seat miles (millions) |
|
|
38,413 |
|
|
|
38,566 |
|
Cargo ton miles (millions) |
|
|
478 |
|
|
|
399 |
|
Passenger load factor |
|
|
83.9 |
% |
|
|
81.8 |
% |
Passenger revenue yield per passenger mile (cents) |
|
|
13.28 |
|
|
|
11.65 |
|
Passenger revenue per available seat mile (cents) |
|
|
11.14 |
|
|
|
9.53 |
|
Cargo revenue yield per ton mile (cents) |
|
|
35.67 |
|
|
|
33.53 |
|
Operating expenses per available seat mile,
excluding Regional Affiliates (cents) (*) |
|
|
12.62 |
|
|
|
11.76 |
|
Fuel consumption (gallons, in millions) |
|
|
627 |
|
|
|
638 |
|
Fuel price per gallon (dollars) |
|
|
2.37 |
|
|
|
1.89 |
|
Operating aircraft at period-end |
|
|
619 |
|
|
|
618 |
|
|
|
|
|
|
|
|
|
|
Regional Affiliates |
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) |
|
|
2,230 |
|
|
|
2,182 |
|
Available seat miles (millions) |
|
|
2,994 |
|
|
|
2,921 |
|
Passenger load factor |
|
|
74.5 |
% |
|
|
74.7 |
% |
|
|
|
|
(*) |
Excludes $662 million and $608 million of expense incurred related to Regional Affiliates
in 2010 and 2009, respectively. |
Operating aircraft at June 30, 2010, included:
American Airlines Aircraft
|
|
|
|
|
Boeing 737-800 |
|
|
128 |
|
Boeing 757-200 |
|
|
124 |
|
Boeing 767-200 Extended Range |
|
|
15 |
|
Boeing 767-300 Extended Range |
|
|
58 |
|
Boeing 777-200 Extended Range |
|
|
47 |
|
McDonnell Douglas MD-80 |
|
|
247 |
|
|
|
|
|
|
Total |
|
|
619 |
|
|
|
|
|
|
AMR Eagle Aircraft
|
|
|
|
|
Bombardier CRJ-700 |
|
|
26 |
|
Embraer 135 |
|
|
39 |
|
Embraer 140 |
|
|
59 |
|
Embraer 145 |
|
|
118 |
|
Super ATR |
|
|
39 |
|
|
|
|
|
|
Total |
|
|
281 |
|
|
|
|
|
|
The average aircraft age for Americans and AMR Eagles aircraft is 15.0 years and 9.3 years,
respectively.
Almost all of the Companys owned aircraft are encumbered by liens granted in connection with
financing transactions entered into by the Company.
Of the operating aircraft listed above, 17 owned Embraer RJ-135 aircraft were in temporary storage
as of June 30, 2010.
In July 2010 through the date of this filing, the Company permanently retired two McDonnell Douglas
MD-80 aircraft, received two Boeing 737-800 aircraft and received two Bombardier CRJ-700 aircraft
into its active fleet.
Owned and leased aircraft not operated by the Company at June 30, 2010, included:
American Airlines Aircraft
|
|
|
|
|
Boeing 737-800 |
|
|
1 |
|
Airbus A300-600R |
|
|
25 |
|
Fokker 100 |
|
|
4 |
|
McDonnell Douglas MD-80 |
|
|
40 |
|
|
|
|
|
|
Total |
|
|
70 |
|
|
|
|
|
|
AMR Eagle Aircraft
-20-
For the Six Months Ended June 30, 2010 and 2009
Revenues
The Companys revenues increased approximately $1.0 billion, or 10.4 percent, to $10.7 billion in
the first six months of 2010 from the same period last year. Americans passenger revenues
increased by 10.2 percent, or $753 million, on a 1.4 percent decrease in capacity (available seat
mile) (ASM). Americans passenger load factor increased 2.1 points to 80.9 percent while passenger
yield increased by 8.9 percent to 13.31 cents. This resulted in an increase in passenger revenue
per available seat mile (RASM) of 11.8 percent to 10.78 cents. Following is additional information
regarding Americans domestic and international RASM and capacity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010 |
|
|
RASM |
|
Y-O-Y |
|
ASMs |
|
Y-O-Y |
|
|
(cents) |
|
Change |
|
(billions) |
|
Change |
DOT Domestic |
|
|
10.73 |
|
|
|
10.2 |
% |
|
|
46.2 |
|
|
|
(0.5 |
)% |
International |
|
|
10.86 |
|
|
|
14.5 |
|
|
|
29.0 |
|
|
|
(2.9 |
) |
DOT Latin America |
|
|
11.40 |
|
|
|
9.2 |
|
|
|
14.5 |
|
|
|
(1.4 |
) |
DOT Atlantic |
|
|
10.42 |
|
|
|
23.4 |
|
|
|
11.0 |
|
|
|
(5.9 |
) |
DOT Pacific |
|
|
9.91 |
|
|
|
11.9 |
|
|
|
3.4 |
|
|
|
0.8 |
|
The Companys Regional Affiliates include two wholly owned subsidiaries, American Eagle Airlines,
Inc. and Executive Airlines, Inc. (collectively, AMR Eagle), and an independent carrier with which
American has a capacity purchase agreement, Chautauqua Airlines, Inc. (Chautauqua).
Regional Affiliates passenger revenues, which are based on industry standard proration agreements
for flights connecting to American flights, increased $128 million, or 13.2 percent, to $1.1
billion as a result of higher yield. Regional Affiliates traffic increased
1.2 percent to 4.1 billion revenue passenger miles (RPMs), on a capacity increase of approximately
one-half of a percent to 5.8 billion ASMs, resulting in a one-half point increase in the passenger
load factor to 71.0 percent.
Other
revenues increased 7.7 percent, or $87 million, to $1.2 billion due to increases in baggage
and AAdvantage partner revenues.
-21-
Operating Expenses
The Companys total operating expenses increased 6.9 percent, or $696 billion, to $10.8 billion in
the six months ended June 30, 2010 compared to the same period in 2009. The Companys operating
expenses per ASM increased 8.3 percent to 13.38 cents compared
to the six months ended June 30, 2009. These increases are due
primarily to increased fuel prices in the first half of 2010 compared to the first half of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
|
(in millions) |
|
Ended |
|
|
Change |
|
|
Percentage |
|
Operating Expenses |
|
June 30, 2010 |
|
|
from 2009 |
|
|
Change |
|
Wages, salaries and benefits |
|
$ |
3,417 |
|
|
|
31 |
|
|
|
0.9 |
% |
Aircraft fuel |
|
|
3,131 |
|
|
|
499 |
|
|
|
19.0 |
(a) |
Other rentals and landing fees |
|
|
704 |
|
|
|
42 |
|
|
|
6.3 |
|
Maintenance, materials and repairs |
|
|
691 |
|
|
|
72 |
|
|
|
11.6 |
(b) |
Depreciation and amortization |
|
|
534 |
|
|
|
(20 |
) |
|
|
(3.6 |
) |
Commissions, booking fees and
credit card expense |
|
|
482 |
|
|
|
58 |
|
|
|
13.7 |
(c) |
Aircraft rentals |
|
|
274 |
|
|
|
24 |
|
|
|
9.6 |
|
Food service |
|
|
236 |
|
|
|
(1 |
) |
|
|
(0.4 |
) |
Special charges |
|
|
|
|
|
|
(36 |
) |
|
|
(100.0 |
) |
Other operating expenses |
|
|
1,375 |
|
|
|
27 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
10,844 |
|
|
|
696 |
|
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Aircraft fuel expense increased primarily due to a 21.1 percent increase in the Companys
price per gallon of fuel (net of the impact of fuel hedging). The Company recorded $114
million and $465 million in net losses on its fuel hedging contracts for the six months
ended June 30, 2010 and June 30, 2009, respectively. |
|
|
(b) |
Maintenance, materials and repairs increased due to the timing of materials and repairs
expenses. |
|
|
(c) |
Commissions, booking fees and credit card expense increased 13.7 percent primarily in
conjunction with the 10.4 percent increase in the Companys revenues. |
Other Income (Expense)
Interest income decreased $9 million due to a decrease in interest rates. Interest expense
increased $65 million as a result of an increase in the Companys long-term debt balance.
Income Tax
The Company did not record a net tax provision (benefit) associated with its loss for the six
months ended June 30, 2010 or June 30, 2009 due to the Company providing a valuation allowance, as
discussed in Note 4 to the condensed consolidated financial statements.
-22-
Operating Statistics
The following table provides statistical information for American and Regional Affiliates for the
six months ended June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2010 |
|
2009 |
American Airlines, Inc. Mainline Jet Operations |
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) |
|
|
60,916 |
|
|
|
60,158 |
|
Available seat miles (millions) |
|
|
75,259 |
|
|
|
76,348 |
|
Cargo ton miles (millions) |
|
|
925 |
|
|
|
770 |
|
Passenger load factor |
|
|
80.9 |
% |
|
|
78.8 |
% |
Passenger revenue yield per passenger mile (cents) |
|
|
13.31 |
|
|
|
12.23 |
|
Passenger revenue per available seat mile (cents) |
|
|
10.78 |
|
|
|
9.64 |
|
Cargo revenue yield per ton mile (cents) |
|
|
35.04 |
|
|
|
36.12 |
|
Operating expenses per available seat mile,
excluding Regional Affiliates (cents) (*) |
|
|
12.76 |
|
|
|
11.79 |
|
Fuel consumption (gallons, in millions) |
|
|
1,225 |
|
|
|
1,255 |
|
Fuel price per gallon (dollars) |
|
|
2.30 |
|
|
|
1.90 |
|
|
|
|
|
|
|
|
|
|
Regional Affiliates |
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) |
|
|
4,093 |
|
|
|
4,043 |
|
Available seat miles (millions) |
|
|
5,767 |
|
|
|
5,739 |
|
Passenger load factor |
|
|
71.0 |
% |
|
|
70.4 |
% |
|
|
|
|
(*) |
Excludes $1.3 billion and $1.2 billion of expense incurred related to Regional Affiliates
in 2010 and 2009, respectively. |
Outlook
The Company currently expects capacity for Americans mainline jet operations to increase by
approximately 3.0 percent in the third quarter of 2010 versus the third quarter of 2009.
Americans mainline capacity for the full year 2010 is expected to increase approximately one
percent from 2009 with a marginal decrease in domestic capacity and approximately a 2.4 percent
growth in international capacity.
The Company expects third quarter 2010 mainline unit costs to remain static year over year. The
third quarter 2010 unit cost expectations reflect the projected increase in the cost of fuel year
over year offset by special expense items recorded in third quarter of 2009. In addition, unit
cost increases are expected due to anticipated higher revenue-related expenses (such as booking
fees and commissions) and financing costs related to Boeing 737-800 and other aircraft deliveries.
Due to these cost pressures, the Company expects third quarter unit costs excluding fuel and prior
year special items to also be consistent with the prior year period.
The Company is in active labor contract negotiations with each of its organized labor groups. The
Company has negotiated tentative agreements with several workgroups within the TWU including the
Maintenance Control Technician group, the Material Logistics Specialists group and the Mechanic and
Related group. Agreements with these TWU groups are subject to ratification by the relevant
membership of TWU, and there are no assurances that these tentative agreements will be ratified.
These tentative agreements include lump sum payments and contractual salary increases. If these
contracts are ratified by union membership, the Companys estimate of the third quarter 2010
mainline unit cost impact of the currently negotiated tentative
agreements is an incremental 0.15 cents.
The Company anticipates implementing productivity improvements consistent with the agreements that
will help to offset the ongoing cost of salary increases.
The Companys results are significantly affected by the price of jet fuel, which is in turn
affected by a number of factors beyond the Companys control. Although fuel prices have abated
considerably from the record high prices recorded in July 2008, they have steadily increased since
the first quarter of 2009 and remain high and extremely volatile by historical standards.
-23-
Critical Accounting Policies and Estimates
The preparation of the Companys financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. The Company believes its
estimates and assumptions are reasonable; however, actual results and the timing of the recognition
of such amounts could differ from those estimates. The Company has identified the following
critical accounting policies and estimates used by management in the preparation of the Companys
financial statements: long-lived assets, international slot and route authorities, passenger
revenue, frequent flyer program, stock compensation, pensions and retiree medical and other
benefits, income taxes and derivatives. These policies and estimates are described in the 2009
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 Companys 2009 Form 10-K.
The change in market risk for aircraft fuel is discussed below for informational purposes.
The risk inherent in the Companys market risk sensitive instruments and positions is the potential
loss arising from adverse changes in the price of fuel as discussed below. The sensitivity
analyses presented do not consider the effects that such adverse changes may have on overall
economic activity, nor do they consider additional actions management may take to mitigate the
Companys exposure to such changes. Therefore, actual results may differ. The Company does not
hold or issue derivative financial instruments for trading purposes.
Aircraft Fuel The Companys earnings are substantially affected by changes in the price and
availability of aircraft fuel. In order to provide a measure of control over price and supply, the
Company trades and ships fuel and maintains fuel storage facilities to support its flight
operations. The Company also manages the price risk of fuel costs primarily by using jet fuel and
heating oil hedging contracts. Market risk is estimated as a hypothetical ten percent increase in
the June 30, 2010 cost per gallon of fuel. Based on projected fuel usage for the next twelve
months, such an increase would result in an increase to Aircraft fuel expense of approximately $526
million, inclusive of the impact of effective fuel hedge instruments outstanding at June 30, 2010,
and assumes the Companys fuel hedging program remains effective. Comparatively, based on
projected 2010 fuel usage, such an increase would have resulted in an increase to aircraft fuel
expense of approximately $499 million in the twelve months ended December 31, 2009, inclusive of
the impact of fuel hedge instruments outstanding at December 31, 2009. The change in market risk
is primarily due to the increase in fuel prices.
Ineffectiveness is inherent in hedging jet fuel with derivative positions based in crude oil or
other crude oil related commodities. The Company assesses, both at the inception of each hedge and
on an ongoing basis, whether the derivatives that are used in its hedging transactions are highly
effective in offsetting changes in cash flows of the hedged items. In doing so, the Company uses a
regression model to determine the correlation of the change in prices of the commodities used to
hedge jet fuel (e.g., NYMEX Heating oil) to the change in the price of jet fuel. The Company also
monitors the actual dollar offset of the hedges market values as compared to hypothetical jet fuel
hedges. The fuel hedge contracts are generally deemed to be highly effective if the R-squared is
greater than 80 percent and the dollar offset correlation is within 80 percent to 125 percent. The
Company discontinues hedge accounting prospectively if it determines that a derivative is no longer
expected to be highly effective as a hedge or if it decides to discontinue the hedging
relationship.
As of June 30, 2010, the Company had cash flow hedges, with collars and options, covering
approximately 42 percent of its estimated remaining 2010 fuel requirements. The consumption hedged
for the remainder of 2010 is capped at an average price of approximately $2.37 per gallon of jet
fuel, and the Companys collars have an average floor price of approximately $1.81 per gallon of
jet fuel (both the capped and floor price exclude taxes and transportation costs). The Companys
collars represent approximately 41 percent of its estimated remaining 2010 fuel requirements. A
deterioration of the Companys financial position could negatively affect the Companys ability to
hedge fuel in the future.
-24-
Item 4. Controls and Procedures
The term disclosure controls and procedures is defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, or the Exchange Act. This term refers to the controls and
procedures of a company that are designed to ensure that information required to be disclosed by a
company in the reports that it files under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the Securities and Exchange Commission. An evaluation
was performed under the supervision and with the participation of the Companys management,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness
of the Companys disclosure controls and procedures as of December 31, 2009. Based on that
evaluation, the Companys management, including the CEO and CFO, concluded that the Companys
disclosure controls and procedures were effective as of June 30, 2010. During the quarter ending on
June 30, 2010, there was no change in the Companys internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.
-25-
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Between April 3, 2003 and June 5, 2003, three lawsuits were filed by travel agents, some of whom
opted out of a prior class action (now dismissed) to pursue their claims individually against
American, other airline defendants, and in one case, against certain airline defendants and Orbitz
LLC. The three cases were consolidated for pre-trial purposes in the United States District Court
for the Northern District of Ohio, Eastern Division. Collectively, these lawsuits seek damages and
injunctive relief alleging that the certain airline defendants and Orbitz LLC: (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; (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; and that (iii) between 1995 and the present, the airline defendants
conspired to reduce commissions paid to U.S.-based travel agents in violation of Section 1 of the
Sherman Act. Of the three cases, only two remain: Tam Travel et. al., v. Delta Air Lines et.
al., in the United States District Court for the Northern District of California, San Francisco
and Swope Travel et al. v. Orbitz et. al. in the United States District Court for the
Eastern District of Texas, Beaumont Division; the third case having been previously dismissed with
prejudice. On October 29, 2007, the court dismissed all actions. The Tam plaintiffs
appealed the courts decision, and on October 2, 2009, the Sixth Circuit Court of Appeals affirmed
the lower court decision. The Tam plaintiffs have filed a petition for writ of certiorari
with the U.S. Supreme Court. The Swope plaintiffs and the remaining defendants, including
American, have agreed to terms for settling the case for a nominal amount. American continues to
vigorously defend the Tam Travel case. A final adverse court decision awarding substantial
money damages or placing material restrictions on the Companys distribution practices would have a
material adverse impact on the Company.
Forty-five purported class action lawsuits have been filed in the U.S. against the Company and
certain foreign and domestic air carriers alleging that the defendants violated U.S. antitrust laws
by illegally conspiring to set prices and surcharges on cargo shipments. These cases, along with
other purported class action lawsuits in which the Company was not named, were consolidated in the
United States District Court for the Eastern District of New York as In re Air Cargo Shipping
Services Antitrust Litigation, 06-MD-1775 on June 20, 2006. Plaintiffs are seeking
trebled money damages and injunctive relief. The Company has not been named as a defendant in the
consolidated complaint filed by the plaintiffs. However, the plaintiffs have not released any
claims that they may have against the Company, and the Company may later be added as a defendant in
the litigation. If the Company is sued on these claims, it will vigorously defend the suit, but
any adverse judgment could have a material adverse impact on the Company. Also, on January 23,
2007, the Company was served with a purported class action complaint filed against the Company,
American, and certain foreign and domestic air carriers in the Supreme Court of British Columbia in
Canada (McKay v. Ace Aviation Holdings, et al.). The plaintiff alleges that the defendants
violated Canadian competition laws by illegally conspiring to set prices and surcharges on cargo
shipments. The complaint seeks compensatory and punitive damages under Canadian law. On June 22,
2007, the plaintiffs agreed to dismiss their claims against the Company. The dismissal is without
prejudice and the Company could be brought back into the litigation at a future date. If
litigation is recommenced against the Company in the Canadian courts, the Company will vigorously
defend itself; however, any adverse judgment could have a material adverse impact on the Company.
On August 21, 2006, a patent infringement lawsuit was filed against American and American Beacon
Advisors, Inc. (then a wholly-owned subsidiary of the Company) in the United States District Court
for the Eastern District of Texas (Ronald A. Katz Technology Licensing, L.P. v. American
Airlines, Inc., et al.). This case has been consolidated in the Central District of California
for pre-trial purposes with numerous other cases brought by the plaintiff against other defendants.
The plaintiff alleges that American infringes a number of the plaintiffs patents, each of which
relates to automated telephone call processing systems. The plaintiff is seeking past and future
royalties, injunctive relief, costs and attorneys fees. On December 1, 2008, the court dismissed
with prejudice all claims against American Beacon. On May 22, 2009, following its granting of
summary judgment to American based on invalidity and non-infringement, the court dismissed all
claims against American. Plaintiff filed a notice of appeal on June 22, 2009 with respect to the
courts ruling for American. Although the Company believes that the plaintiffs claims are without
merit and is vigorously defending the lawsuit, a final adverse court decision awarding substantial
money damages or placing material restrictions on existing automated telephone call system
operations would have a material adverse impact on the Company.
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On June 20, 2006, DOJ served the Company with a grand jury subpoena as part of an ongoing
investigation into possible criminal violations of the antitrust laws by certain domestic and
foreign passenger carriers. At this time, the Company does not believe it is a target of the DOJ
investigation. The Company intends to cooperate fully with this investigation. On September 4,
2007, the Attorney General of the State of Florida served the Company with a Civil Investigative
Demand as part of its investigation of possible violations of federal and Florida antitrust laws
regarding the pricing of air passenger transportation. In the event that this or other
investigations uncover violations of the U.S. antitrust laws or the competition laws of some other
jurisdiction, such findings and related legal proceedings could have a material adverse impact on
the Company.
On February 14, 2006, the Antitrust Division of the United States Department of Justice (DOJ)
served the Company with a grand jury subpoena as part of an ongoing investigation into possible
criminal violations of the antitrust laws by certain domestic and foreign air cargo carriers. At
this time, the Company does not believe it is a target of the DOJ investigation. The New Zealand
Commerce Commission notified the Company on February 17, 2006 that it is also investigating whether
the Company and certain other cargo carriers entered into agreements relating to fuel surcharges,
security surcharges, war-risk surcharges, and customs clearance surcharges. On February 22, 2006,
the Company received a letter from the Swiss Competition Commission informing the Company that it
too is investigating whether the Company and certain other cargo carriers entered into agreements
relating to fuel surcharges, security surcharges, war-risk surcharges, and customs clearance
surcharges. On March 11, 2008, the Company received from the Swiss Competition Commission a
request for information concerning, among other things, the scope and organization of the Companys
activities in Switzerland. On December 19, 2006 and June 12, 2007, the Company received requests
for information from the European Commission seeking information regarding the Companys corporate
structure, and revenue and pricing announcements for air cargo shipments to and from the European
Union. On January 23, 2007, the Brazilian competition authorities, as part of an ongoing
investigation, conducted an unannounced search of the Companys cargo facilities in Sao Paulo,
Brazil. On April 24, 2008, the Brazilian competition authorities charged the Company with
violating Brazilian competition laws. On December 31, 2009, the Brazilian competition authorities
made a non-binding recommendation to the Brazilian competition tribunal that it find the Company in
violation of competition laws. The authorities are investigating whether the Company and certain
other foreign and domestic air carriers violated Brazilian competition laws by illegally conspiring
to set fuel surcharges on cargo shipments. The Company is vigorously contesting the allegations
and the preliminary findings of the Brazilian competition authorities. On June 27, 2007 and
October 31, 2007, the Company received requests for information from the Australian Competition and
Consumer Commission seeking information regarding fuel surcharges imposed by the Company on cargo
shipments to and from Australia and regarding the structure of the Companys cargo operations. On
September 1, 2008, the Company received a request from the Korea Fair Trade Commission seeking
information regarding cargo rates and surcharges and the structure of the Companys activities in
Korea. On December 18, 2007, the European Commission issued a Statement of Objection
(SO) against 26 airlines, including the Company. The SO alleges that these carriers participated
in a conspiracy to set surcharges on cargo shipments in violation of EU law. The SO states that,
in the event that the allegations in the SO are affirmed, the Commission will impose fines against
the Company. The Company intends to vigorously contest the allegations and findings in the SO
under EU laws, and it intends to cooperate fully with all other pending investigations. In the
event that the SO is affirmed or other investigations uncover violations of the U.S. antitrust laws
or the competition laws of some other jurisdiction, or if the Company were named and found liable
in any litigation based on these allegations, such findings and related legal proceedings could
have a material adverse impact on the Company.
Approximately 52 purported class action lawsuits have been filed in the U.S. against the Company
and certain foreign and domestic air carriers alleging that the defendants violated U.S. antitrust
laws by illegally conspiring to set prices and surcharges for passenger transportation. On October
25, 2006, these cases, along with other purported class action lawsuits in which the Company was
not named, were consolidated in the United States District Court for the Northern District of
California as In re International Air Transportation Surcharge Antitrust Litigation, Civ.
No. 06-1793 (the Passenger MDL). On July 9, 2007, the Company was named as a defendant in the
Passenger MDL. On August 25, 2008, the plaintiffs dismissed their claims against the Company in
this action. On March 13, 2008, and March 14, 2008, an additional purported class action
complaint, Turner v. American Airlines, et al., Civ. No. 08-1444 (N.D. Cal.), was filed against the
Company, alleging that the Company violated U.S. antitrust laws by illegally conspiring to set
prices and surcharges for passenger transportation in Japan and certain European countries,
respectively. The Turner plaintiffs have failed to perfect service against the Company, and it is
unclear whether they intend to pursue their claims. In the event that the Turner plaintiffs pursue
their claims, the Company will vigorously defend these lawsuits, but any adverse judgment in these
actions could have a material adverse impact on the Company.
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Item 6. Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K. Where the amount of securities
authorized to be issued under any of AMRs long-term debt agreements does not exceed 10 percent of
AMRs assets, pursuant to paragraph (b) (4) of Item 601 of Regulation S-K, in lieu of filing such
as an exhibit, AMR hereby agrees to furnish to the Commission upon request a copy of any agreement
with respect to such long-term debt.
The following exhibits are included herein:
10.1 |
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Supplemental Agreement No. 34 to Purchase Agreement No. 1977 by and between American
Airlines, Inc. and The Boeing Company dated as of July 21, 2010. Portions of this Exhibit have
been omitted and filed separately with the Securities and Exchange Commission pursuant to a
confidential treatment request under Rule 24b-2 of the Securities and Exchange Act of 1934, as
amended. |
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10.2 |
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Supplemental Agreement No. 2 to Purchase Agreement No. 3219 by and between American Airlines,
Inc. and The Boeing Company dated as of July 21, 2010. Portions of this Exhibit have been
omitted and filed separately with the Securities and Exchange Commission pursuant to a
confidential treatment request under Rule 24b-2 of the Securities and Exchange Act of 1934, as
amended. |
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12 |
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Computation of ratio of earnings to fixed charges for the three and six months ended June 30,
2010 and 2009. |
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31.1 |
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a). |
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31.2 |
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a). |
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32 |
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Certification pursuant to Rule 13a-14(b) and section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code). |
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101 |
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The following materials from AMR Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010, formatted in XBRL (Extensible Business Reporting Language):
(i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated
Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to
Condensed Consolidated Financial Statements, tagged as blocks of text. |
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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.
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AMR CORPORATION
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Date: July 21, 2010 |
BY: |
/s/ Thomas W. Horton
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Thomas W. Horton |
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Executive Vice President Finance and Planning and
Chief Financial Officer
(Principal Financial and Accounting Officer) |
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