Aa 2001
Aa 2001
AMR CORPORATION
AMR CORPORATION
P.O. Box 619616, Dallas/Fort Worth, Texas 75261-9616
The American Airlines internet address is www.aa.com
The AMR internet address is www.amrcorp.com
TABLE
OF
CONTENTS
Letter to Shareholders,
Customers and Employees
41
Board of Directors
42
Corporate Information
44
LETTER
AND
TO
SHAREHOLDERS, CUSTOMERS
EMPLOYEES
petitive success.
less, the losses we incurred for the year were staggering. The
2001 was a painful year for all three of our major con-
And yet, despite all the bad news, 2001 which, among
ness completed the biggest, the most complex, and the most
the past year. But as we learned in 2001, the values and prin-
ciples that have guided our Company through the past three
more important.
took their eyes off the ball when it came to providing high-
not have emerged from 2001 intact were it not for the sup-
yet the dignity, the strength and the grace they exhibited as we
Sincerely,
Donald J. Carty
Managements Discussion
and Analysis
Consolidated Statements
of Operations
14
Consolidated Statements
of Cash Flows
Consolidated Balance Sheets
15
16
Consolidated Statements
of Stockholders Equity
18
Notes to Consolidated
Financial Statements
19
Report of Independent
Auditors
39
Report of Management
40
41
Board of Directors
42
Management Divisions
and Subsidiaries
43
Corporate Information
44
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMRs principal subsidiary, American
Airlines, Inc., was founded in 1934. On April 9, 2001, American Airlines, Inc. purchased substantially all of the assets and
assumed certain liabilities of Trans World Airlines, Inc. (TWA). Accordingly, the operating results of TWA since the date of
acquisition have been included in the accompanying consolidated financial statements for the year ended December 31, 2001
(see Note 3 to the consolidated financial statements). American Airlines, Inc., including TWA (collectively, American), is the
largest scheduled passenger airline in the world. AMRs operations fall almost entirely in the airline industry.
RESULTS OF OPERATIONS
AMRs net loss in 2001 was $1.8 billion, or $11.43 loss per share. AMRs net earnings in 2000 were $813 million, or
$5.43 per share ($5.03 diluted). On September 11, 2001, two American Airlines aircraft were hijacked and destroyed in terrorist
attacks on The World Trade Center in New York City and the Pentagon in northern Virginia. On the same day, two United Air
Lines aircraft were also hijacked and used in terrorist attacks. In response to the terrorist attacks, the Federal Aviation Administration (FAA) issued a federal ground stop order on September 11, 2001, prohibiting all flights to, from and within the United
States. Airports did not reopen until September 13, 2001 (except for Washington Reagan Airport, which was partially reopened
on October 4, 2001). The Company was able to operate only a portion of its scheduled flights for several days thereafter. When
flights were permitted to resume, passenger traffic and yields on the Companys flights were significantly lower than prior to the
attacks. As a result, the Company reduced its operating schedule to approximately 80 percent of the schedule it flew prior to
September 11, 2001. Somewhat offsetting the impact of the September 11 events, the Company recorded $856 million in
reimbursement from the U.S. Government under the Air Transportation Safety and System Stabilization Act (the Act) (see
Note 2 to the consolidated financial statements).
REVENUES
2001 Compared to 2000 The Companys 2001 revenues, yield, revenue passenger miles (RPMs) and available seat miles
(ASMs) were severely impacted by the September 11, 2001 terrorist attacks, the Companys reduced operating schedule, a
worsening of the U.S. economy that had already been dampening the demand for travel both domestically and internationally
prior to the September 11, 2001 events, business travel declines as a result of the September 11, 2001 attacks, and increased fare
sale activity occurring subsequent to the September 11 attacks to encourage passengers to resume flying. The Companys revenues
decreased approximately $740 million, or 3.8 percent, versus 2000. However, excluding TWAs revenues for the period April 10,
2001 through December 31, 2001, the Companys revenues would have decreased approximately $2.6 billion versus 2000.
For comparability purposes, the following discussion does not combine Americans and TWAs results of operations or
related statistics for 2001. Americans passenger revenues decreased by 14 percent, or $2.3 billion. In 2001, American derived
approximately 68 percent of its passenger revenues from domestic operations and approximately 32 percent from international
operations. Americans domestic revenue per available seat mile (RASM) decreased 11.3 percent, to 9.28 cents, on a capacity
decrease of 5 percent, or 104 billion ASMs. International RASM decreased to 9.07 cents, or 5.2 percent, on a capacity decrease
of 4.9 percent. The decrease in international RASM was led by an 11.8 percent and 10.8 percent decrease in Pacific and European
RASM, respectively, slightly offset by a 0.9 percent increase in Latin American RASM. The decrease in international capacity was
driven by a 6.5 percent and 4.7 percent reduction in Latin American and European ASMs, respectively, partially offset by an
increase in Pacific capacity of 2.8 percent.
TWAs passenger revenues were approximately $1.7 billion for the period April 10, 2001 through December 31, 2001.
TWAs RASM was 7.74 cents on capacity of 21.7 billion ASMs.
AMR Eagles passenger revenues decreased $74 million, or 5.1 percent. AMR Eagles traffic remained flat compared to
2000, at 3.7 billion RPMs, while capacity increased to 6.5 billion ASMs, or 3.4 percent. Similar to American, the decrease in
AMR Eagles revenues was due primarily to the September 11, 2001 terrorist attacks and a worsening of the U.S. economy that
had already been dampening the demand for air travel prior to that date.
Cargo revenues decreased 8.2 percent, or $59 million, for the same reasons as noted above.
2000 Compared to 1999 The Companys revenues increased approximately $2.0 billion, or 11.1 percent, versus 1999.
Americans passenger revenues increased by 11.3 percent, or $1.7 billion. The increase in revenues was due primarily to a strong
U.S. economy, which led to strong demand for air travel both domestically and internationally, a favorable pricing climate, the
impact of a domestic fuel surcharge implemented in January 2000 and increased in September 2000, a labor disruption at one of
the Companys competitors which positively impacted the Companys revenues by approximately $80 to $100 million, and a
schedule disruption which negatively impacted the Companys operations in 1999. In 2000, American derived approximately
70 percent of its passenger revenues from domestic operations and approximately 30 percent from international operations.
Americans domestic RASM increased 12.4 percent, to 10.42 cents, on a capacity decrease of 1.6 percent, or 109.5 billion
ASMs. The decrease in domestic capacity was due primarily to the Companys More Room Throughout Coach program. International RASM increased to 9.64 cents, or 10.7 percent, on a capacity increase of 3.2 percent. The increase in international
RASM was led by a 16.5 percent, 13.4 percent and 7.8 percent increase in Pacific, European and Latin American RASM,
respectively. The increase in international capacity was driven by a 6.6 percent, 2.7 percent and 0.5 percent increase in European,
Pacific and Latin American ASMs, respectively.
AMR Eagles passenger revenues increased $158 million, or 12.2 percent. AMR Eagles traffic increased to 3.7 billion
RPMs, up 10.7 percent, while capacity increased to 6.3 billion ASMs, or 10.9 percent. The increase in revenues was due primarily
to growth in AMR Eagle capacity aided by a strong U.S. economy, which led to strong demand for air travel, and a favorable
pricing environment.
Cargo revenues increased 12.1 percent, or $78 million, due primarily to a fuel surcharge implemented in February 2000
and increased in October 2000, and the increase in cargo capacity from the addition of 16 Boeing 777-200ER aircraft in 2000.
OPERATING EXPENSES
2001 Compared to 2000 The Companys operating expenses increased 17 percent, or approximately $3.1 billion. However,
excluding TWAs expenses for the period April 10, 2001 through December 31, 2001, the Companys expenses would have
increased approximately $888 million versus 2000. In addition to the specific explanations provided below, the significant
decline in passenger traffic resulting from the terrorist acts of September 11, 2001 and resulting reduced operating schedule
caused a favorable impact on certain passenger-related operating expenses, including aircraft fuel, other rentals and landing fees,
commissions to agents and food service. Americans cost per ASM increased 6.3 percent to 11.14 cents, excluding TWA and
the impact of special charges net of U.S. Government grant. The increase in Americans cost per ASM was driven partially by
a reduction in ASMs due to the Companys More Room Throughout Coach program. Removing the impact of this program,
Americans cost per ASM grew approximately 3.3 percent, excluding TWA and the impact of special charges net of U.S.
Government grant. TWAs cost per ASM, excluding the impact of special charges net of U.S. Government grant, was
10.58 cents. Wages, salaries and benefits increased 18.4 percent, or $1.3 billion, and included approximately $920 million
related to the addition of TWA. The remaining increase of approximately $329 million related primarily to an increase in the
average number of equivalent employees and contractual wage rate and seniority increases that are built into the Companys
labor contracts. During 2001, the Company recorded approximately $300 million in additional wages, salaries and benefits
related primarily to the Companys new contracts with its flight attendants and Transport Workers Union work groups. This
was mostly offset by a $328 million decrease in the provision for profit-sharing as compared to 2000. Aircraft fuel expense
increased 15.8 percent, or $393 million, and included approximately $322 million related to the addition of TWA. The
remaining increase in aircraft fuel expense was due to a 4.2 percent increase in the Companys average price per gallon,
partially offset by a 3.7 percent decrease in the Companys fuel consumption, excluding TWA. Depreciation and amortization
expense increased 16.8 percent, or $202 million, due primarily to the addition of new aircraft and an increase of approximately
$88 million related to TWA. Other rentals and landing fees increased $198 million, or 19.8 percent, and included approximately
$130 million related to the addition of TWA. The remaining increase of $68 million was due primarily to higher facilities rent
and landing fees across the Companys system. Commissions to agents decreased 19.5 percent, or $202 million, and included
approximately $59 million related to TWA. The decrease in commissions to agents was due primarily to a 13.2 percent decrease
in passenger revenues, excluding TWA, and the benefit from commission structure changes implemented in 2000. Aircraft rentals
increased $222 million, or 36.6 percent, due primarily to the addition of TWA aircraft. Other operating expenses increased
11.1 percent, or $368 million, and included approximately $358 million related to TWA. Special charges net of U.S. Government grant included: (i) a $685 million asset impairment charge recorded in the second quarter of 2001 related to the write-down
of the carrying value of the Companys Fokker 100, Saab 340 and ATR-42 aircraft and related rotables, (ii) charges resulting from
the September 11, 2001 terrorist events, including approximately $552 million related to aircraft charges, $115 million in facility
exit costs, $71 million in employee charges and $43 million in other charges, and (iii) an $856 million benefit recognized for the
reimbursement from the U.S. Government under the Act. See a further discussion of special charges net of U.S. Government
grant in Note 2 to the consolidated financial statements.
2000 Compared to 1999 The Companys operating expenses increased 10.5 percent, or approximately $1.7 billion. Americans
cost per ASM increased by 10.3 percent to 10.48 cents, partially driven by a reduction in ASMs due to the Companys More
Room Throughout Coach program. Removing the impact of this program, Americans cost per ASM grew approximately
6.9 percent. Wages, salaries and benefits increased $663 million, or 10.8 percent, primarily due to an increase in the average
number of equivalent employees and contractual wage rate and seniority increases that are built into the Companys labor
contracts, an increase of approximately $93 million in the provision for profit-sharing, and a charge of approximately $56 million
for the Companys employee home computer program. Aircraft fuel expense increased $799 million, or 47.1 percent, due to an
increase of 42.0 percent in the Companys average price per gallon and a 3.7 percent increase in the Companys fuel consumption.
The increase in fuel expense is net of gains of approximately $545 million recognized during 2000 related to the Companys fuel
hedging program. Depreciation and amortization expense increased $110 million, or 10.1 percent, due primarily to the addition
7
of new aircraft, many of which replaced older aircraft. Maintenance, materials and repairs expense increased $92 million, or
9.2 percent, due primarily to an increase in airframe and engine maintenance volumes at the Companys maintenance bases and
an approximate $17 million one-time credit the Company received in 1999. Commissions to agents decreased 10.8 percent, or
$125 million, despite an 11.4 percent increase in passenger revenues, due primarily to commission structure changes implemented
in October 1999 and January 2000, and a decrease in the percentage of commissionable transactions.
OTHER I NCOME (EXPENSE)
Other income (expense) consists of interest income and expense, interest capitalized and miscellaneous net.
2001 Compared to 2000 Interest income decreased $44 million, or 28.6 percent, resulting from lower investment balances
throughout most of 2001. Interest expense increased $71 million, or 15.2 percent, resulting primarily from the increase in longterm debt of approximately $4.2 billion. Miscellaneous net decreased $70 million due primarily to 2001 including a $45 million
gain from the settlement of a legal matter related to the Companys 1999 labor disruption, offset by the write-down of certain
investments held by the Company. This compares to 2000 including a $57 million gain on the sale of the Companys warrants to
purchase 5.5 million shares of priceline.com Incorporated (priceline) common stock and a gain of approximately $41 million from
the recovery of start-up expenses from the Canadian Airlines International Limited (Canadian) services agreement.
2000 Compared to 1999 Interest income increased $59 million, or 62.1 percent, due primarily to higher investment balances.
Interest expense increased $74 million, or 18.8 percent, resulting primarily from financing new aircraft deliveries. Interest
capitalized increased 28 percent, or $33 million, due to an increase in purchase deposits for flight equipment. Miscellaneous
net increased $38 million due primarily to a $57 million gain on the sale of the Companys warrants to purchase 5.5 million
shares of priceline common stock and a gain of approximately $41 million from the recovery of start-up expenses from the
Canadian services agreement. During 1999, the Company recorded a gain of approximately $75 million from the sale of a portion
of Americans interest in Equant N.V. and a gain of approximately $40 million related to the sale of the Companys investment in
the preferred stock of Canadian. These gains were partially offset by the provision for the settlement of litigation items and the
write-down of certain investments held by the Company during 1999.
OPERATING STATISTICS
The following table provides statistical information for American (excluding TWA) and AMR Eagle for the years ended
December 31, 2001, 2000 and 1999.
2001
American Airlines
Revenue passenger miles (millions)
Available seat miles (millions)
Cargo ton miles (millions)
Passenger load factor
Breakeven load factor *
Passenger revenue yield per passenger mile (cents)
Passenger revenue per available seat mile (cents)
Cargo revenue yield per ton mile (cents)
Operating expenses per available seat mile (cents) *
Operating aircraft at year end
AMR Eagle
Revenue passenger miles (millions)
Available seat miles (millions)
Passenger load factor
Operating aircraft at year end
* Excludes the impact of special charges net of U.S. Government grant
1999
106,224
153,035
2,058
69.4%
78.1%
13.28
9.22
30.24
11.14
712
116,594
161,030
2,280
72.4%
65.9%
14.06
10.18
31.31
10.48
717
112,067
161,211
2,068
69.5%
63.8%
13.14
9.13
30.70
9.50
697
3,725
6,471
57.6%
276
3,731
6,256
59.6%
261
3,371
5,640
59.8%
268
In addition, American has available a $1 billion credit facility that expires September 30, 2002. Interest on this facility
is based upon LIBOR plus a spread. This facility is immediately available subject to the Company providing specified aircraft
collateral as security at the time of borrowing. At December 31, 2001, no borrowings were outstanding under this facility.
Following the September 11, 2001 events, Standard & Poors and Moodys downgraded the credit ratings of AMR and
American, and the credit ratings of a number of other major airlines. The long-term corporate credit ratings of AMR and
American were initially retained on review for possible downgrade by Moodys, and following subsequent downgrades, were given
a negative outlook. In addition, the long-term corporate credit ratings of AMR and American remain on Standard & Poors
CreditWatch with negative implications. Any additional reductions in AMRs or Americans credit ratings could result in
increased borrowing costs to the Company and might limit the availability of future financing sources.
The following table summarizes the Companys obligations and commitments to be paid in 2002 and 2003 (in millions):
Nature of commitment
Operating lease payments for aircraft and facility
obligations *
Firm aircraft commitments
Long-term debt **
Capital lease obligations **
Total obligations and commitments
2002
$
1,336
1,300
556
326
3,518
2003
$
1,276
1,700
296
243
3,515
Certain special facility revenue bonds issued by municipalities which are supported by operating leases executed by American
are guaranteed by AMR and American. See Note 6 to the consolidated financial statements for additional information.
** Excludes related interest amounts
In addition to the Companys approximately $3.0 billion in cash and short-term investments as of December 31, 2001,
the Company has available a variety of future financing sources, including, but not limited to: (i) the receipt of the remainder
of the U.S. Government grant, which approximates $128 million, (ii) additional secured aircraft debt (as of December 31, 2001,
the Company had approximately $4.4 billion net book value of unencumbered aircraft), (iii) the availability of the Companys
$1 billion credit facility, (iv) sale-leaseback transactions of owned property, including aircraft and real estate, (v) tax-exempt
borrowings for airport facilities, (vi) securitization of future operating receipts, (vii) unsecured borrowings, and (viii) borrowings
backed by federal loan guarantees as provided under the Act. No assurance can be given that any of these financing sources will be
available on terms acceptable to the Company. However, the Company believes it will meet its financing needs as discussed above.
AMR (principally American) historically operates with a working capital deficit as do most other airline companies. The
existence of such a deficit has not in the past impaired the Companys ability to meet its obligations as they become due and is not
expected to do so in the future.
OTHER I NFORMATION
Environmental Matters Subsidiaries of AMR have been notified of potential liability with regard to several environmental
cleanup sites and certain airport locations. At sites where remedial litigation has commenced, potential liability is joint and
several. AMRs alleged volumetric contributions at these sites are minimal compared to others. AMR does not expect these
matters, individually or collectively, to have a material impact on its results of operations, financial position or liquidity.
Additional information is included in Note 5 to the consolidated financial statements.
Critical Accounting Policies and Estimates The preparation of the Companys financial statements in conformity with
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 utilized by management in the preparation of the
Companys financial statements: accounting for long-lived assets, passenger revenue, frequent flyer accounting, and pensions and
other postretirement benefits.
Accounting for Long-Lived Assets The Company has approximately $21 billion of long-lived assets as of December 31,
2001, including approximately $19 billion related to flight equipment and related fixed assets. In addition to the original
cost of these assets, their recorded value is impacted by a number of policy elections made by the Company, including
estimated useful lives, salvage values and in 2001, impairment charges. In accordance with Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of (SFAS 121), the Company records impairment charges on long-lived assets used in operations when events
and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amount of those assets. In this circumstance, the impairment charge is determined
10
based upon the amount the net book value of the assets exceeds their fair market value. In making these determinations,
the Company utilizes certain assumptions, including, but not limited to: (i) estimated fair market value of the assets, and
(ii) estimated future cash flows expected to be generated by these assets, which are based on additional assumptions such as
asset utilization, length of service the asset will be used in the Companys operations and estimated salvage values. During
2001, the Company determined its Fokker 100, Saab 340 and ATR 42 aircraft and related rotables were impaired under
SFAS 121 and recorded impairment charges of approximately $1.1 billion. In addition, during the fourth quarter of 2001,
the Company completed an impairment analysis of its long-lived assets, including aircraft fleets, route acquisition costs,
airport operating and gate lease rights, and goodwill. The impairment analysis did not result in any additional impairment
charges. See Notes 1 and 2 to the consolidated financial statements for additional information with respect to each of the
policies and assumptions utilized by the Company which affect the recorded values of long-lived assets.
Passenger revenue Passenger ticket sales are initially recorded as a component of air traffic liability. Revenue derived from
ticket sales is recognized at the time service is provided. However, due to various factors, including the complex pricing
structure and interline agreements throughout the industry, certain amounts are recognized in revenue using estimates
regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates are
generally based upon the evaluation of historical trends, including the use of regression analysis and other methods to
model the outcome of future events based on the Companys historical experience. Due to the uncertainties surrounding
the impact of the September 11, 2001 events on the Companys business (see Note 2 to the consolidated financial
statements) and the acquisition of TWA in April 2001 (see Note 3 to the consolidated financial statements), historical
trends may not be representative of future results.
Frequent flyer accounting The Company utilizes a number of estimates in accounting for its AAdvantage frequent flyer
program. Additional information regarding the Companys AAdvantage frequent flyer program is included in Note 1 to
the consolidated financial statements. Changes to the percentage of the amount of revenue deferred, deferred recognition
period, cost per mile estimates or the minimum award level accrued could have a significant impact on the Companys
revenues or incremental cost accrual in the year of the change as well as in future years. In addition, the Emerging Issues
Task Force of the Financial Accounting Standards Board is currently reviewing the accounting for both multipledeliverable revenue arrangements and volume-based sales incentive offers, but has not yet reached a consensus that would
apply to programs such as the AAdvantage program. The issuance of new accounting standards could have a significant
impact on the Companys frequent flyer liability in the year of the change as well as in future years.
Pensions and other postretirement benefits The Companys pension and other postretirement benefit costs and liabilities are
calculated utilizing various actuarial assumptions and methodologies prescribed under Statements of Financial Accounting
Standards No. 87, Employers Accounting for Pensions and No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. The Company utilizes certain assumptions including, but not limited to, the selection of the:
(i) discount rate, (ii) expected return on plan assets, and (iii) expected health care cost trend rate. The discount rate
assumption is based upon the review of high quality corporate bond rates and the change in these rates during the year.
The expected return on plan assets and health care cost trend rate are based upon an evaluation of the Companys historical
trends and experience taking into account current and expected market conditions. In addition, the Companys future
pension and other postretirement benefit costs and liabilities will be impacted by the acquisition of TWA and the new
labor agreements entered into during 2001. See Note 11 to the consolidated financial statements for additional
information regarding the Companys pension and other postretirement benefits.
New Accounting Pronouncements In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations (SFAS 141) and No. 142, Goodwill and Other Intangible
Assets (SFAS 142). SFAS 141 prohibits the use of the pooling-of-interests method for business combinations initiated after
June 30, 2001 and includes criteria for the recognition of intangible assets separately from goodwill. SFAS 142 includes the
requirement to test goodwill and indefinite lived intangible assets for impairment rather than amortize them. The Company
will adopt SFAS 142 in the first quarter of 2002, and currently estimates the impact to the Companys results of operations of
discontinuing the amortization of goodwill and route authorities to be approximately $66 million on an annualized basis. The
Company is currently evaluating what additional impact these new accounting standards may have on the Companys financial
position or results of operations. However, with the decline in the Companys market capitalization, in part due to the terrorist
attacks on September 11, 2001, the adoption of SFAS 142 may result in the impairment of the Companys goodwill.
11
OUTLOOK
Due in part to the lack of predictability of future traffic, business mix and yields, the Company continues to have difficulty
in estimating the impact of the events of September 11, 2001. However, given the magnitude of these unprecedented events, the
Company expects that the adverse impact to the Company and to the airline industry as a whole will continue to be significant in 2002. Because of the high degree of uncertainty, the Company is not currently able to provide an estimate for the full year
2002. However, the Company does expect to incur a sizable loss in the first quarter, and will likely incur a loss for 2002.
Capacity for American which reflects TWA in the first quarter of 2002 but not in the first quarter of 2001 is expected
to increase two to three percent in the first quarter of 2002 compared to last years first quarter levels. American Eagles capacity
will be down slightly. Capacity for the remainder of 2002 is less clear and depends on a number of factors, including, but not
limited to, how quickly demand returns and what levels of capacity the Companys competitors deploy. Traffic continues to
remain challenging to predict. However, for the first quarter of 2002, the Company expects traffic to be up about three percent
from last years first quarter levels. In response to the September 11 terrorist attacks, the Company put in place numerous cost
reduction initiatives, including, but not limited to: cutting capacity, grounding aircraft and deferring certain aircraft deliveries to
future years, sharply reducing capital spending, closing facilities, trimming food service and reducing its workforce. In addition,
the Company expects to see lower fuel prices in the first quarter of 2002 compared to 2001. Somewhat offsetting these cost
savings, however, will be higher wages, salaries and benefit costs, higher security costs and insurance premiums, and greater
interest expense. Americans unit costs for the first quarter of 2002 are expected to be three to five percent higher than last years
first quarter.
FORWARD -LOOKING INFORMATION
The preceding Letter to Shareholders, Customers and Employees and Managements Discussion and Analysis
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, believes, and similar expressions are intended to identify forward-looking statements. Forward-looking
statements include, without limitation, the Companys expectations concerning operations and financial conditions, including
changes in capacity, revenues and costs, expectations as to future financing needs, overall economic conditions and plans and
objectives for future operations, the ability to continue to successfully integrate with its operations the assets acquired from TWA
and the former TWA workforce, and the impact of the events of September 11, 2001 on the Company and the sufficiency of the
Companys financial resources to absorb that impact. Other forward-looking statements include statements which do not relate
solely to historical facts, such as, without limitation, statements which discuss the possible future effects of current known trends
or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or
assured. All forward-looking statements in this report are based upon information available to the Company on the date of this
report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result
of new information, future events or otherwise. Forward-looking statements are subject to a number of factors that could cause
actual results to differ materially from our expectations. The following factors, in addition to other possible factors not listed,
could cause the Companys actual results to differ materially from those expressed in forward-looking statements: uncertainty
of future collective bargaining agreements and events; economic and other conditions; fuel prices/supply; competition in the
airline industry; changing business strategy; government regulation; uncertainty in international operations; adverse impact of
the terrorist attacks; availability of future financing; and availability of the Act. Additional information concerning these and other
factors is contained in the Companys Securities and Exchange Commission filings, including but not limited to Form 10-K for
2001, copies of which are available from the Company without charge.
MARKET RISK SENSITIVE INSTRUMENTS AND P OSITIONS
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, foreign currency exchange rates and interest rates 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. Actual results may differ. See
Note 8 to the consolidated financial statements for accounting policies and additional information.
12
Aircraft Fuel The Companys earnings are 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 utilizing jet fuel, heating oil, and crude swap
and option contracts. Market risk is estimated as a hypothetical 10 percent increase in the December 31, 2001 and 2000 cost per
gallon of fuel. Based on projected 2002 fuel usage, such an increase would result in an increase to aircraft fuel expense of approximately $169 million in 2002, net of fuel hedge instruments outstanding at December 31, 2001, and assumes the Companys fuel
hedging program remains effective under Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. Comparatively, based on projected 2001 fuel usage, such an increase would have resulted in
an increase to aircraft fuel expense of approximately $194 million in 2001, net of fuel hedge instruments outstanding at December
31, 2000. The change in market risk is due primarily to the decrease in fuel prices. As of December 31, 2001, the Company had
hedged approximately 40 percent of its estimated 2002 fuel requirements, approximately 21 percent of its estimated 2003 fuel
requirements, and approximately five percent of its estimated 2004 fuel requirements, compared to approximately 40 percent of
its estimated 2001 fuel requirements, 15 percent of its estimated 2002 fuel requirements, and approximately seven percent of its
estimated 2003 fuel requirements hedged at December 31, 2000.
Foreign Currency The Company is exposed to the effect of foreign exchange rate fluctuations on the U.S. dollar value of
foreign currency-denominated operating revenues and expenses. The Companys largest exposure comes from the British pound,
Euro, Canadian dollar, Japanese yen and various Latin American currencies. The Company uses options to hedge a portion of its
anticipated foreign currency-denominated ticket sales. The result of a uniform 10 percent strengthening in the value of the U.S.
dollar from December 31, 2001 and 2000 levels relative to each of the currencies in which the Company has foreign currency
exposure would result in a decrease in operating income of approximately $40 million and $33 million for the years ending
December 31, 2002 and 2001, respectively, net of hedge instruments outstanding at December 31, 2001 and 2000, due to the
Companys foreign-denominated revenues exceeding its foreign-denominated expenses. This sensitivity analysis was prepared
based upon projected 2002 and 2001 foreign currency-denominated revenues and expenses as of December 31, 2001 and 2000.
Interest The Companys earnings are also affected by changes in interest rates due to the impact those changes have on its
interest income from cash and short-term investments, and its interest expense from variable-rate debt instruments. The Company has variable-rate debt instruments representing approximately 35 percent and 29 percent of its total long-term debt at
December 31, 2001 and 2000, respectively, and interest rate swaps on notional amounts of approximately $148 million and
$158 million, respectively, at December 31, 2001 and 2000. If interest rates average 10 percent more in 2002 than they did at
December 31, 2001, the Companys interest expense would increase by approximately $10 million and interest income from cash
and short-term investments would increase by approximately $16 million. In comparison, at December 31, 2000, the Company
estimated that if interest rates averaged 10 percent more in 2001 than they did at December 31, 2000, the Companys interest
expense would have increased by approximately $11 million and interest income from cash and short-term investments would
have increased by approximately $15 million. These amounts are determined by considering the impact of the hypothetical
interest rates on the Companys variable-rate long-term debt, interest rate swap agreements, and cash and short-term investment
balances at December 31, 2001 and 2000.
Market risk for fixed-rate long-term debt is estimated as the potential increase in fair value resulting from a hypothetical
10 percent decrease in interest rates, and amounts to approximately $318 million and $148 million as of December 31, 2001 and
2000, respectively. The change in market risk is due primarily to the increase in the Companys fixed-rate long-term debt during
2001. The fair values of the Companys long-term debt were estimated using quoted market prices or discounted future cash flows
based on the Companys incremental borrowing rates for similar types of borrowing arrangements.
In addition, the Company holds investments in certain other entities which are subject to market risk. However, the
impact of such market risk on earnings is not significant due to the immateriality of the carrying value and the geographically
diverse nature of these holdings.
13
2001
$
Expenses
Wages, salaries and benefits
Aircraft fuel
Depreciation and amortization
Other rentals and landing fees
Maintenance, materials and repairs
Commissions to agents
Aircraft rentals
Food service
Other operating expenses
Special charges, net of U.S. Government grant
Total operating expenses
Operating Income (Loss)
Other Income (Expense)
Interest income
Interest expense
Interest capitalized
Miscellaneous net
15,780
1,378
662
1,143
18,963
8,032
2,888
1,404
1,197
1,165
835
829
778
3,695
610
21,433
(2,470)
$
$
6,783
2,495
1,202
999
1,095
1,037
607
777
3,327
18,322
1,381
110
(538)
144
(2)
(286)
16,394
1,452
721
1,136
19,703
1999
14,724
1,294
643
1,069
17,730
6,120
1,696
1,092
942
1,003
1,162
630
740
3,189
16,574
1,156
154
(467)
151
68
(94)
95
(393)
118
30
(150)
(2,756)
(994)
1,287
508
1,006
350
(1,762)
779
656
43
265
822
(9)
813
64
985
985
(1,762)
(1,762)
(11.43)
(11.43)
(11.43)
(11.43)
5.20
0.30
(0.07)
5.43
4.81
0.27
(0.05)
5.03
4.30
2.16
6.46
4.17
2.09
6.26
(in millions)
Cash Flow from Operating Activities:
Income (loss) from continuing operations after extraordinary loss
Adjustments to reconcile income (loss) from continuing operations after
extraordinary loss to net cash provided by operating activities:
Depreciation
Amortization
Provisions for asset impairments
Deferred income taxes
Extraordinary loss on early extinguishment of debt
Gain on disposition of equipment and property and other investments
Change in assets and liabilities:
Decrease (increase) in receivables
Increase in inventories
Increase in accounts payable and accrued liabilities
Increase (decrease) in air traffic liability
Other, net
Net cash provided by operating activities
2001
$
(1,762)
656
928
274
461
14
(57)
864
228
183
(110)
120
(39)
379
(276)
226
511
(169)
(111)
579
438
15
3,142
261
(140)
42
84
196
2,264
(3,640)
(742)
(728)
(3,678)
(438)
(3,539)
(253)
401
18
(4,691)
332
559
(50)
(3,275)
164
259
(81)
(3,450)
(922)
(766)
(280)
4,744
352
37
4,211
836
67
137
1,956
54
25
300
(871)
1,184
4
85
89
(2)
87
85
$
$
$
581
-
$
$
$
31
89
120
$
$
$
15
770
1,122
282
1,214
(731)
(24)
300
54
December 31,
(in millions)
Assets
2001
Current Assets
Cash
Short-term investments
Receivables, less allowance for uncollectible accounts
(2001 $52; 2000 $27)
Inventories, less allowance for obsolescence
(2001 $383; 2000 $332)
Deferred income taxes
Other current assets
Total current assets
120
2,872
2000
89
2,144
1,414
1,303
822
790
522
6,540
757
695
191
5,179
21,707
6,727
14,980
20,041
6,320
13,721
929
1,700
4,202
2,123
2,079
17,988
3,639
1,968
1,671
17,092
2,658
163
2,821
1,154
1,667
2,618
159
2,777
1,233
1,544
1,325
1,392
3,929
6,646
1,143
385
870
2,398
Other Assets
Route acquisition costs and airport operating and gate lease rights,
less accumulated amortization (2001 $556; 2000 $498)
Goodwill, less accumulated amortization (2001 $110; 2000 $83)
Other
Total Assets
16
32,841
26,213
December 31,
(in millions, except shares and par value)
Liabilities and Stockholders Equity
2001
Current Liabilities
Accounts payable
Accrued salaries and wages
Accrued liabilities
Air traffic liability
Current maturities of long-term debt
Current obligations under capital leases
Total current liabilities
2000
1,785
721
1,471
2,763
556
216
7,512
1,267
955
1,276
2,696
569
227
6,990
8,310
4,151
1,524
1,323
1,627
520
2,538
5,437
10,122
2,385
508
1,706
1,974
6,573
182
2,865
(1,716)
(146)
4,188
5,373
17
32,841
182
2,911
(1,865)
(2)
5,950
7,176
26,213
Common
Stock
$ 182
-
Additional
Paid-in
Capital
$ 3,075
-
Treasury
Stock
$ (1,288)
-
Accumulated
Other
Comprehensive
Loss
$ (4)
-
Retained
Earnings
$ 4,733
985
Total
$ 6,698
985
(1)
(1)
987
(871)
182
-
(14)
3,061
-
(871)
58
(2,101)
-
(2)
-
5,718
813
(5)
182
-
(150)
2,911
-
44
6,858
813
(5)
5
813
(581)
(581)
236
(1,865)
-
(2)
-
5,950
(1,762)
86
7,176
(1,762)
(101)
(101)
(46)
(46)
3
(1,906)
$ 4,188
103
$ 5,373
$ 182
(46)
$ 2,865
18
149
$ (1,716)
$ (146)
On September 22, 2001, President Bush signed into law the Air Transportation Safety and System Stabilization Act (the
Act), which for all U.S. airlines and air cargo carriers (collectively, air carriers) provides for, among other things: (i) $5 billion in
compensation for direct losses (including lost revenues) incurred as a result of the federal ground stop order and for incremental
losses incurred through December 31, 2001 as a direct result of the attacks; (ii) subject to certain conditions, the availability of up
to $10 billion in federal government guarantees of certain loans made to air carriers for which credit is not reasonably available as
determined by a newly established Air Transportation Stabilization Board; (iii) the authority of the Secretary of Transportation to
reimburse air carriers (which authority expires 180 days after the enactment of the Act) for the increase in the cost of insurance,
for coverage ending before October 1, 2002, over the premium in effect for the period September 4, 2001 to September 10, 2001;
(iv) at the discretion of the Secretary of Transportation, a $100 million limit on the liability of any air carrier to third parties with
respect to acts of terrorism committed on or to such air carrier during the 180-day period following the enactment of the Act;
(v) the extension of the due date for the payment by air carriers of certain excise taxes; and (vi) compensation to individual
claimants who were physically injured or killed as a result of the terrorist attacks of September 11, 2001. In addition, the Act
provides that, notwithstanding any other provision of law, liability for all claims, whether compensatory or punitive, arising from
the terrorist-related events of September 11, 2001 against any air carrier shall not exceed the liability coverage maintained by
the air carrier.
Based upon estimates provided by the Companys insurance providers, the Company has recorded a liability of
approximately $2.3 billion for claims arising from the events of September 11, 2001, after considering the liability protections
provided for by the Act. In addition, the Company has recorded a receivable for the same amount which the Company expects to
recover from its insurance carriers as claims are resolved. This insurance receivable and liability are classified as Other assets and
Other liabilities and deferred credits on the accompanying consolidated balance sheets, respectively, and are based on reserves
established by the Companys insurance carriers. These estimates may be revised as additional information becomes available
concerning the expected claims.
Under the airline compensation provisions of the Act, each air carrier is entitled to receive the lesser of: (i) its direct and
incremental losses for the period September 11, 2001 to December 31, 2001 or (ii) its proportional available seat mile allocation
of the $5 billion compensation available under the Act. The Company has received a total of $728 million from the U.S.
Government under the Act. The Company expects to receive additional payments in 2002 aggregating approximately
$128 million. As of December 31, 2001, the Company recognized approximately $856 million as compensation under the Act,
which is included in Special charges net of U.S. Government grant on the accompanying consolidated statements of operations.
Adjustments to the amount of compensation received by the Company may be recognized in 2002 as the rules governing the
distribution of the government grant are finalized. The finalized rules could result in more or less compensation to the Company
under the Act.
Special charges net of U.S. Government grant for the year ended December 31, 2001 included the following
(in millions):
Year Ended
December 31, 2001
$
1,237
115
71
43
1,466
(856)
$
610
Aircraft charges
Facility exit costs
Employee charges
Other
Total special charges
Less: U.S. Government grant
Aircraft charges In conjunction with the acquisition of TWA, coupled with revisions to the Companys fleet plan to accelerate
the retirement dates of its Fokker 100, Saab 340 and ATR 42 aircraft, during the second quarter of 2001 the Company determined these aircraft were impaired under SFAS 121. As a result, during the second quarter of 2001, the Company recorded an
asset impairment charge of approximately $685 million relating to the write-down of the carrying value of 71 Fokker 100 aircraft,
74 Saab 340 aircraft and 20 ATR 42 aircraft and related rotables to their estimated fair market values. Management estimated the
undiscounted future cash flows utilizing models used by the Company in making fleet and scheduling decisions. In determining
the fair market value of these aircraft, the Company considered outside third party appraisals and recent transactions involving
sales of similar aircraft.
Following the events of September 11, 2001, and decisions by other carriers to ground their Fokker 100 fleets, the
Company determined that the estimated fair market value of its Fokker 100, Saab 340 and ATR 42 aircraft had further declined
in value. Therefore, during the third quarter of 2001, the Company recorded an additional charge of approximately $423 million
reflecting the diminution in the estimated fair market value of these aircraft and related rotables.
21
In addition, due primarily to fleet plan changes implemented by the Company as a result of the events of September 11,
2001, the Company recorded a charge of approximately $64 million related primarily to the write-down of certain other aircraft
and aircraft modifications to their estimated fair market value. Included in this charge is the write-down of five owned Boeing
727-200 non-operating aircraft and one owned McDonnell Douglas MD-80 non-operating aircraft.
As a result of the write-down of these aircraft to fair market value, as well as the acceleration of the retirement dates,
including the acceleration of the Companys remaining 50 owned Boeing 727-200 aircraft to May 2002, and changes in salvage
values, depreciation and amortization expense will decrease by approximately $57 million on an annualized basis.
Due to the events of September 11, 2001, and subsequent impact on the Company and the rest of the airline industry,
during the fourth quarter of 2001, the Company completed an impairment analysis of its long-lived assets, including aircraft
fleets, route acquisition costs, airport operating and gate lease rights, and goodwill in accordance with applicable accounting
standards. The impairment analysis did not result in any additional impairment charges beyond those recorded in the second and
third quarters of 2001.
The Company also retired all McDonnell Douglas DC-9 aircraft and eight McDonnell Douglas MD-80 aircraft during the
third and fourth quarters of 2001, and accelerated the retirement of its entire Boeing 717-200 fleet to June 2002 (these aircraft
were acquired from TWA). In conjunction therewith, the Company recorded a charge of approximately $65 million related
primarily to future lease commitments and return condition costs on the operating leased aircraft past the dates they will be
removed from service. As of December 31, 2001, cash outlays are estimated to be approximately $58 million and will occur over
the remaining lease terms, which extend through 2010.
Facility exit costs Also in response to the September 11, 2001 terrorist attacks, the Company announced that it would
discontinue service at Dallas Love Field and discontinue or reduce service on several of its international routes. In addition,
the Company announced it would close six Admirals Clubs, five airport Platinum Service Centers and approximately 105 offairport Travel Centers in 37 cities, all effective September 28, 2001. As a result of these announcements, the Company recorded
an $87 million charge related primarily to future lease commitments and the write-off of leasehold improvements and fixed assets.
As of December 31, 2001, cash outlays related to the accrual of future lease commitments are estimated to be approximately
$20 million and will occur over the remaining lease terms, which extend through 2018.
In addition, in December 2001, American agreed to sell its terminal facilities lease rights at the Raleigh-Durham
International Airport to the Raleigh-Durham Airport Authority. As a result of this transaction, the Company recorded a
$28 million charge in the fourth quarter of 2001 to accrue the residual cost less sales proceeds.
Employee charges On September 19, 2001, the Company announced that it would be forced to reduce its workforce by
approximately 20,000 jobs across all work groups (pilots, flight attendants, mechanics, fleet service clerks, agents, management
and support staff personnel). The reduction in workforce, which the Company accomplished through various measures, including
leaves of absence, job sharing, elimination of open positions, furloughs in accordance with collective bargaining agreements and
permanent layoffs, resulted from the September 11, 2001 terrorist attacks and the Companys subsequent reduction of its
operating schedule by approximately 20 percent. In connection therewith, the Company recorded a charge of approximately
$71 million for employee termination benefits. Cash outlays for the employee charges were incurred substantially during 2001
and approximated the amount of the charge recorded.
3. Acquisition of TWA Assets
On April 9, 2001, American purchased substantially all of the assets of TWA and assumed certain liabilities. TWA was the
eighth largest U.S. carrier, with a primary domestic hub in St. Louis. American funded the acquisition of TWAs assets with its
existing cash and short-term investments. The acquisition of TWA was accounted for under the purchase method of accounting
and, accordingly, the operating results of TWA since the date of acquisition have been included in the accompanying consolidated
financial statements for the year ended December 31, 2001.
The accompanying consolidated financial statements reflect the allocation of the purchase price, which was based on
estimated fair values of the assets acquired and liabilities assumed. American paid approximately $742 million in cash (subject to
certain working capital adjustments) for the purchase of TWA, which included the $625 million purchase price paid to TWA and
various other acquisition costs, primarily the purchase of aircraft security deposits and prepaid rent, and assumed the following
obligations: $638 million in current liabilities, $734 million in postretirement benefits other than pensions, $519 million in
capital lease obligations and approximately $175 million of other long-term liabilities. The purchase price was allocated as follows:
approximately $812 million to current assets, $574 million to fixed assets, primarily capital lease aircraft, and approximately
$320 million to other assets, resulting in goodwill of approximately $1 billion, which is being amortized on a straight-line basis
over 40 years.
22
The following table provides unaudited pro forma consolidated results of operations, assuming the acquisition had
occurred as of January 1, 2000 (in millions, except per share amounts):
(Unaudited)
Year Ended December 31,
2001
2000
$
19,830
$
23,265
(1,769)
687
(1,769)
730
$
(11.48)
$
4.51
Operating revenues
Income (loss) from continuing operations
Net earnings (loss)
Earnings (loss) per share diluted
The unaudited pro forma consolidated results of operations have been prepared for comparative purposes only. These
amounts are not indicative of the combined results which would have occurred had the transaction actually been consummated
on the date indicated above and are not indicative of the consolidated results of operations which may occur in the future.
4. Investments
Short-term investments consisted of (in millions):
December 31,
2001
2000
460
$
361
722
649
906
500
333
361
130
442
78
74
2,872
$
2,144
Short-term investments at December 31, 2001, by contractual maturity included (in millions):
Due in one year or less
Due between one year and three years
Due after three years
1,950
692
230
2,872
All short-term investments are classified as available-for-sale and stated at fair value. Unrealized gains and losses, net of
deferred taxes, are reflected as an adjustment to stockholders equity.
American has standby letter of credit agreements (see Note 6) which are secured by approximately $490 million of shortterm investments.
During 1999, the Company entered into an agreement with priceline.com Incorporated (priceline) whereby ticket
inventory provided by the Company may be sold through pricelines e-commerce system. In conjunction with this agreement,
the Company received warrants to purchase approximately 5.5 million shares of priceline common stock. In the second quarter
of 2000, the Company sold these warrants for proceeds of approximately $94 million, and recorded a gain of $57 million which
is included in Miscellaneous net on the accompanying consolidated statements of operations.
Also during 1999, the Company sold approximately 2.7 million depository certificates which were convertible, subject
to certain restrictions, into the common stock of Equant N.V. (Equant), a public company, for a net gain of approximately
$118 million, after taxes and minority interest. Of this amount, approximately $75 million is included in Miscellaneous net and
approximately $71 million, net of taxes and minority interest, related to depository certificates held by the Company on behalf of
Sabre is included in income from discontinued operations on the accompanying consolidated statements of operations. During
2001, as a result of the merger between France Telecom and Equant, the Company converted its remaining depository certificates
into France Telecom common stock and subsequently sold those shares for a net gain of approximately $5 million which is
included in Miscellaneous net on the accompanying consolidated statements of operations.
23
In December 1999, the Company entered into an agreement to sell its investment in the cumulative mandatorily
redeemable convertible preferred stock of Canadian Airlines International Limited (Canadian) for approximately $40 million,
resulting in a gain of $40 million which is included in Miscellaneous net on the accompanying consolidated statements of
operations. In addition, the Company recognized a tax benefit of $67 million resulting from the tax loss on the investment,
representing the reversal of a deferred tax valuation allowance since it is more likely than not that the tax benefit will be realized.
The valuation allowance was established in 1996 when the investment was written-off because, at that time, it was not more likely
than not that the tax benefit of the write-off would be realized. During 2000, the Company recorded a gain of approximately
$41 million from the recovery of start-up expenses (previously written-off) from the Canadian services agreement entered into
during 1995 which is included in Miscellaneous net on the accompanying consolidated statements of operations.
5. Commitments and Contingencies
During the fourth quarter of 2001, the Company reached an agreement with Boeing that included a combination
of aircraft delivery deferrals, substitutions and limited additional aircraft orders. As a direct result of the agreement with
Boeing, the Companys 2002 and 2003 aircraft commitment amounts have been reduced, in the aggregate, by approximately
$700 million. Following this agreement, at December 31, 2001, the Company had commitments to acquire the following aircraft:
47 Boeing 737-800s, 14 Boeing 777-200ERs, nine Boeing 767-300ERs, seven Boeing 757-200s, 124 Embraer regional jets and
24 Bombardier CRJ-700s. Deliveries of all aircraft extend through 2008. Future payments for all aircraft, including the estimated
amounts for price escalation, will approximate $1.3 billion in 2002, $1.7 billion in 2003, $1.2 billion in 2004 and an aggregate
of approximately $1.9 billion in 2005 through 2008. These future payments are net of approximately $470 million related to
deposits made for 2002 aircraft deliveries which have been deferred as part of the agreement with Boeing that will be applied
to future aircraft deliveries. In addition to these commitments for aircraft, the Company expects to spend approximately
$500 million in 2002 for modifications to aircraft, renovations of and additions to airport and off-airport facilities, and
the acquisition of various other equipment and assets.
Miami-Dade County is currently investigating and remediating various environmental conditions at the Miami International Airport (MIA) and funding the remediation costs through landing fees and various cost recovery methods. American
and AMR Eagle have been named as potentially responsible parties (PRPs) for the contamination at MIA. During the second
quarter of 2001, the County filed a lawsuit against 17 defendants, including American, in an attempt to recover its past and future
cleanup costs (Miami-Dade County, Florida v. Advance Cargo Services, Inc., et al. in the Florida Circuit Court). In addition to the
17 defendants named in the lawsuit, 243 other agencies and companies were also named as PRPs and contributors to the
contamination. Americans and AMR Eagles portion of the cleanup costs cannot be reasonably estimated due to various factors,
including the unknown extent of the remedial actions that may be required, the proportion of the cost that will ultimately be
recovered from the responsible parties, and uncertainties regarding the environmental agencies that will ultimately supervise the
remedial activities and the nature of that supervision. In addition, the Company is subject to environmental issues at various other
airport and non-airport locations. Management believes, after considering a number of factors, that the ultimate disposition of
these environmental issues is not expected to materially affect the Companys consolidated financial position, results of operations
or cash flows. Amounts recorded for environmental issues are based on the Companys current assessments of the ultimate
outcome and, accordingly, could increase or decrease as these assessments change.
The Company is involved in certain claims and litigation related to its operations. In the opinion of management,
liabilities, if any, arising from these claims and litigation would not have a material adverse effect on the Companys consolidated
financial position, results of operations, or cash flows.
The Company has agreed to sell its McDonnell Douglas MD-11 aircraft to FedEx Corporation (FedEx). No significant
gain or loss is expected to be recognized as a result of this transaction. As of December 31, 2001, the carrying value of the
remaining aircraft American has committed to sell was approximately $143 million. The Company expects to deliver the
remaining aircraft to FedEx by the third quarter of 2002.
AMR and American have event risk covenants in approximately $2.2 billion of indebtedness as of December 31, 2001.
These covenants permit the holders of such indebtedness to receive a higher rate of return (between 75 and 650 basis points
above the stated rate) if a designated event, as defined, should occur and the credit rating of such indebtedness is downgraded
below certain levels within a certain period of time following the event. No designated event, as defined, has occurred as of
December 31, 2001.
24
6. Leases
AMRs subsidiaries lease various types of equipment and property, primarily aircraft and airport facilities. The future
minimum lease payments required under capital leases, together with the present value of such payments, and future minimum
lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as
of December 31, 2001, were (in millions):
Capital
Leases
$
326
243
295
229
231
1,233
2,557
817
$
1,740
Operating
Leases
$
1,336
1,276
1,199
1,138
1,073
11,639
$
17,661 1
As of December 31, 2001, included in Other liabilities and deferred credits on the accompanying consolidated balance sheets is approximately
$1.6 billion relating to rent expense being recorded in advance of future operating lease payments.
At December 31, 2001, the Company had 342 jet aircraft and 41 turboprop aircraft under operating leases and 76 jet
aircraft and 55 turboprop aircraft under capital leases which includes both operating and non-operating aircraft. The aircraft
leases can generally be renewed at rates based on fair market value at the end of the lease term for one to five years. Most aircraft
leases have purchase options at or near the end of the lease term at fair market value, but generally not to exceed a stated
percentage of the defined lessors cost of the aircraft or at a predetermined fixed amount.
Special facility revenue bonds have been issued by certain municipalities primarily to purchase equipment and improve
airport facilities that are leased by American and accounted for as operating leases. Approximately $2.3 billion of these bonds
(with total future payments of approximately $6 billion as of December 31, 2001) are guaranteed by AMR and American. These
guarantees can only be invoked in the event American defaults on the lease obligation and certain other remedies are not available.
In addition, of the $2.3 billion, American may be required to purchase up to $558 million under various remarketing agreements
which are supported by standby letters of credit with terms ranging from one to three years.
Rent expense, excluding landing fees, was $1.7 billion for 2001 and $1.3 billion for 2000 and 1999.
7. Indebtedness
Long-term debt (excluding amounts maturing within one year) consisted of (in millions):
December 31,
2001
Secured variable and fixed rate indebtedness due through 2021
(effective rates from 2.4% 9.6% at December 31, 2001)
Enhanced equipment trust certificates due through 2019
(rates from 6.8% 9.1% at December 31, 2001)
Credit facility agreement due in 2005
(5.09% at December 31, 2001)
9.0% 10.20% debentures due through 2021
7.875% 10.55% notes due through 2039
6.0% 7.10% bonds due through 2031
Unsecured variable rate indebtedness due through 2024
(3.55% at December 31, 2001)
Other
Long-term debt, less current maturities
25
3,591
2000
$
2,656
3,006
553
814
332
302
176
332
345
176
86
3
8,310
86
3
4,151
Maturities of long-term debt (including sinking fund requirements) for the next five years are: 2002 $556 million;
2003 $296 million; 2004 $359 million; 2005 $1.2 billion; 2006 $886 million.
During 2001, American issued approximately $2.6 billion of enhanced equipment trust certificates and entered into
approximately $1.1 billion of various debt agreements. These financings are secured by aircraft. Effective rates on these financings
are fixed or variable (based upon the London Interbank Offered Rate [LIBOR] plus a spread).
In April 2001, the Board of Directors of American approved the guarantee by American of AMRs existing debt
obligations. As of December 31, 2001, this guarantee covered approximately $676 million of unsecured debt and approximately
$573 million of secured debt. (American is a Securities and Exchange Commission registrant and has filed consolidated financial
statements included in its Form 10-K for the year ended December 31, 2001.)
During the third quarter of 2000, the Company repurchased prior to scheduled maturity approximately $167 million in
face value of long-term debt. Cash from operations provided the funding for the repurchases. These transactions resulted in an
extraordinary loss of $14 million.
American has an $834 million credit facility that expires December 15, 2005. At Americans option, interest on this facility
can be calculated on one of several different bases. For most borrowings, American would anticipate choosing a floating rate based
upon LIBOR. During the fourth quarter of 2001, American amended this credit facility to include, among other items, a revision
of its financial covenants, including modifications to its fixed charge covenant and the addition of certain liquidity requirements.
The next test of the fixed charge covenant will occur on June 30, 2003 and will consider only the preceding six-month period.
American secured the facility with previously unencumbered aircraft. In addition, the facility requires that American maintain
at least $1.5 billion of liquidity, as defined in the facility, which consists primarily of cash and short-term investments, and
50 percent of the net book value of its unencumbered aircraft. The interest rate on the entire credit facility will be reset on
March 18, 2002.
In addition, American has available a $1 billion credit facility that expires September 30, 2002. Interest on this facility
is based upon LIBOR plus a spread. This facility is immediately available subject to the Company providing specified aircraft
collateral as security at the time of borrowing. At December 31, 2001, no borrowings were outstanding under this facility.
Certain debt is secured by aircraft, engines, equipment and other assets having a net book value of approximately
$8.5 billion. In addition, certain of Americans debt and letter of credit agreements contain restrictive covenants, including a
minimum net worth requirement, which could limit Americans ability to pay dividends. At December 31, 2001, under the most
restrictive provisions of those debt and credit facility agreements, approximately $400 million of the retained earnings of American
was available for payment of dividends to AMR.
Cash payments for interest, net of capitalized interest, were $343 million, $301 million and $237 million for 2001, 2000
and 1999, respectively.
8. Financial Instruments and Risk Management
As part of the Companys risk management program, AMR uses a variety of financial instruments, including fuel swap
and option contracts, interest rate swaps, and currency option contracts and exchange agreements. The Company does not hold
or issue derivative financial instruments for trading purposes.
The Company is exposed to credit losses in the event of non-performance by counterparties to these financial instruments,
but it does not expect any of the counterparties 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 the majority of its
counterparties which may require the Company or the counterparty to post collateral if the value of these instruments falls below
certain mark-to-market thresholds. The Companys outstanding collateral as of December 31, 2001 was not material.
Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended (SFAS 133). SFAS 133 requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings. The ineffective portion of a derivatives change in fair value will be
immediately recognized in earnings. The adoption of SFAS 133 did not result in a cumulative effect adjustment being recorded to
net income for the change in accounting. However, the Company recorded a transition adjustment of approximately $64 million
in Accumulated other comprehensive loss in the first quarter of 2001. The amounts included in the following discussion are not
comparable in that the 2001 amounts reflect the January 1, 2001 adoption of SFAS 133 whereas the 2000 amounts do not.
26
Fuel Price Risk Management American enters into jet fuel, heating oil and crude swap and option contracts to protect against
increases in jet fuel prices. These instruments generally have maturities of up to 36 months. In accordance with SFAS 133, the
Company accounts for its fuel swap and option contracts as cash flow hedges. Upon the adoption of SFAS 133, the Company
recorded the fair value of its fuel hedging contracts in Other assets and Accumulated other comprehensive loss on the consolidated
balance sheets. Effective gains or losses on fuel hedging agreements are deferred in Accumulated other comprehensive loss and are
recognized in earnings as a component of fuel expense when the underlying fuel being hedged is used. The ineffective portion of
the fuel hedge agreements is based on the change in the total value of the derivative relative to the change in the value of the fuel
being hedged and is recognized as a component of fuel expense on the accompanying consolidated statements of operations.
For the year ended December 31, 2001 and 2000, the Company recognized net gains of approximately $29 million and
$545 million, respectively, as a component of fuel expense on the accompanying consolidated statements of operations related
to its fuel hedging agreements. The net gains recognized in 2001 included approximately $72 million of ineffectiveness expense
relating to the Companys fuel hedging agreements. At December 31, 2001, American had fuel hedging agreements with brokerdealers on approximately 2.3 billion gallons of fuel products, which represented approximately 40 percent of its expected 2002
fuel needs, approximately 21 percent of its expected 2003 fuel needs, and approximately five percent of its expected 2004 fuel
needs. The fair value of the Companys fuel hedging agreements at December 31, 2001 and 2000, representing the amount the
Company would receive to terminate the agreements, totaled $39 million and $223 million, respectively.
Interest Rate Risk Management American utilizes interest rate swap contracts to effectively convert a portion of its fixed-rate
obligations to floating-rate obligations. Under SFAS 133, the Company accounts for its interest rate swap contracts as fair value
hedges whereby the fair value of the related interest rate swap agreement is reflected in Other assets with the corresponding liability being recorded as a component of Long-term debt on the consolidated balance sheets. The Company has no ineffectiveness
with regard to its interest rate swap contracts. The fair value of the Companys interest rate swap agreements, representing the
amount the Company would receive if the agreements were terminated at December 31, 2001 and 2000, was approximately
$11 million and $4 million, respectively.
Foreign Exchange Risk Management To hedge against the risk of future exchange rate fluctuations on a portion of Americans
foreign cash flows, the Company enters into various currency put option agreements on a number of foreign currencies. These
instruments generally have maturities of up to 12 months. In accordance with SFAS 133, the Company accounts for its currency
put option agreements as cash flow hedges. Upon the adoption of SFAS 133, the Company recorded the fair value of its foreign
currency put option agreements in Other assets and Accumulated other comprehensive loss on the consolidated balance sheets.
Effective gains and losses on currency put option agreements are deferred in Accumulated other comprehensive loss and are
recognized in earnings as a component of passenger revenue when the underlying hedged revenues are recognized. The ineffectiveness associated with the Companys currency put option agreements was not material. For the year ended December 31, 2001,
the Company recognized net gains of approximately $14 million as a component of passenger revenue related to its foreign
currency put option agreements. The fair value of the Companys foreign currency put option agreements totaled approximately
$12 million and $20 million as of December 31, 2001 and 2000, respectively, representing the amount the Company would
receive to terminate these agreements.
The Company has entered into Japanese yen currency exchange agreements to effectively convert certain yen-based lease
obligations into dollar-based obligations. Under SFAS 133, the Company accounts for its Japanese yen currency exchange agreements as cash flow hedges whereby the fair value of the related Japanese yen currency exchange agreements is reflected in Other
liabilities and deferred credits and Accumulated other comprehensive loss on the consolidated balance sheets. The Company has
no ineffectiveness with regard to its Japanese yen currency exchange agreements. The fair value of the Companys yen currency
exchange agreements, representing the amount the Company would pay to terminate the agreements, were $45 million and
$5 million as of December 31, 2001 and 2000, respectively. The exchange rates on the Japanese yen agreements range from
66.5 to 113.5 yen per U.S. dollar.
27
Fair Values of Financial Instruments 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 incremental borrowing rates for similar types of borrowing arrangements. The carrying amounts
and estimated fair values of the Companys long-term debt, including current maturities, were (in millions):
December 31,
2001
2000
Carrying
Value
Secured variable and fixed rate
indebtedness
Enhanced equipment trust certificates
Credit facility agreement
7.875% 10.55% notes
9.0% 10.20% debentures
6.0% 7.10% bonds
Unsecured variable rate indebtedness
Other
Fair
Value
3,989
3,094
814
343
332
176
86
32
8,866
Carrying
Value
3,751
3,025
814
310
293
143
86
32
8,454
Fair
Value
2,799
567
749
332
176
86
11
4,720
2,879
576
759
358
179
86
11
4,848
All other financial instruments are either carried at fair value or their carrying value approximates fair value.
9. Income Taxes
The significant components of the income tax provision (benefit) were (in millions):
Current
Deferred
$
$
2001
(263)
(731)
(994)
$
$
1999
167
183
350
The income tax provision (benefit) includes a federal income tax provision (benefit) of $(911) million, $454 million
and $290 million and a state income tax provision (benefit) of $(90) million, $47 million and $49 million for the years ended
December 31, 2001, 2000 and 1999, respectively.
28
The income tax provision (benefit) differed from amounts computed at the statutory federal income tax rate as follows
(in millions):
2001
(965)
(58)
(7)
18
7
11
(994)
30
19
9
508
1999
352
32
19
(67)
14
350
The change in valuation allowance in 2001 related to the Companys uncertainty regarding the realization of the foreign
tax credit carryforward, and in 1999 related to the realization of a tax loss on the sale of the Companys investment in Canadian
(see Note 4).
The components of AMRs deferred tax assets and liabilities were (in millions):
December 31,
2001
Deferred tax assets:
Postretirement benefits other than pensions
Rent expense
Alternative minimum tax credit carryforwards
Operating loss carryforwards
Frequent flyer obligation
Gains from lease transactions
Other
Valuation allowance
Total deferred tax assets
925
765
572
412
409
216
784
(7)
4,076
(4,065)
(369)
(157)
(322)
(4,913)
(837)
2000
$
632
522
184
362
225
541
2,466
(3,822)
(89)
(245)
(4,156)
(1,690)
At December 31, 2001, AMR had available for federal income tax purposes an alternative minimum tax credit carryforward of approximately $572 million which is available for an indefinite period, and federal and state net operating losses
of approximately $1.1 billion for regular tax purposes which will fully expire, if unused, in 2021.
Cash payments (receipts) for income taxes were $(28) million, $49 million and $71 million for 2001, 2000 and
1999, respectively.
29
2001
16,568,907
4,180,595
(951,191)
(286,025)
Weighted
Average
Exercise
Price
$ 25.42
28.35
38.34
23.04
19,512,286
$ 26.46
16,568,907
7,161,346
$ 22.95
5,334,444
Options
Outstanding at January 1
Sabre adjustment
Granted
Exercised
Canceled
Outstanding at
December 31
Exercisable options
outstanding at
December 31
1999
4,147,124
1,539,585
(258,875)
(208,200)
Weighted
Average
Exercise
Price
$ 46.60
63.19
68.17
49.96
$ 25.42
5,219,634
$ 52.06
$ 19.79
2,012,889
$ 40.63
Options
The following table summarizes information about the stock options outstanding at December 31, 2001:
Range of
Exercise
Prices
Under $20
$20 $30
Over $30
Number of
Options
Outstanding
2,403,770
9,945,874
7,162,642
19,512,286
Weighted
Average
Remaining
Life (years)
3.60
7.74
8.51
7.51
Weighted
Average
Exercise Price
$ 15.16
24.16
33.45
$ 26.46
30
Number of
Options
Exercisable
2,368,838
3,172,758
1,619,750
7,161,346
Weighted
Average
Exercise Price
$
15.14
24.19
31.92
$
22.95
In May 1997, in conjunction with the labor agreement reached between American and members of the Allied Pilots
Association (APA), the Company established the Pilots Stock Option Plan (The Pilot Plan). The Pilot Plan granted members of
the APA the option to purchase 11.5 million shares of AMR stock at $41.69 per share, $5 less than the average fair market value
of the stock on the date of grant, May 5, 1997. These shares were exercisable immediately. In conjunction with the Sabre spin-off,
the exercise price was adjusted to $17.59 per share. Pilot Plan option activity was:
2001
10,990,190
(1,174,865)
9,815,325
Outstanding at January 1
Sabre adjustment
Exercised
Outstanding at December 31
1999
5,791,381
(371,353)
5,420,028
The weighted-average grant date fair value per share of all stock option awards granted during 2001, 2000 and 1999 was
$12.23, $16.54 and $23.17, respectively.
Shares of deferred stock are awarded at no cost to officers and key employees under the Plans Career Equity Program and
will be issued upon the individuals retirement from AMR or, in certain circumstances, will vest on a pro rata basis. Deferred stock
activity was:
2001
4,956,497
(98,566)
(72,219)
4,785,712
Outstanding at January 1
Sabre adjustment
Granted
Issued
Canceled
Outstanding at December 31
1999
2,401,532
146,200
(122,042)
(115,010)
2,310,680
The weighted-average grant date fair value per share of career equity awards granted during 1999 was $63.54.
A performance share plan was implemented in 1993 under the terms of which shares of deferred stock are awarded at no
cost to officers and key employees under the Plans. The fair value of the performance shares granted is equal to the market price
of the Companys stock at the date of grant. The shares vest over a three-year performance period based upon certain specified
financial measures of the Company. Performance share activity was:
2001
2,507,755
913,422
(194,128)
(706,302)
(33,945)
2,486,802
Outstanding at January 1
Sabre adjustment
Granted
Issued
Awards settled in cash
Canceled
Outstanding at December 31
1999
1,565,616
509,822
(208,265)
(513,370)
(138,159)
1,215,644
The weighted-average grant date fair value per share of performance share awards granted during 2001, 2000 and 1999 was
$28.27, $32.93 and $62.95, respectively.
31
The Company has adopted the pro forma disclosure features of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123). As required by SFAS 123, pro forma information regarding income
(loss) from continuing operations before extraordinary loss and earnings (loss) per share from continuing operations before
extraordinary loss have been determined as if the Company had accounted for its employee stock options and awards granted
subsequent to December 31, 1994 using the fair value method prescribed by SFAS 123. The fair value for the stock options was
estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for
2001, 2000 and 1999: risk-free interest rates ranging from 4.58% to 6.15%; dividend yields of 0%; expected stock volatility
ranging from 31.3% to 45.2%; and expected life of the options of 4.5 years for the Plans and 1.5 years for The Pilot Plan.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that
have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because the Companys employee stock options have characteristics
significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect
the fair value estimate, in managements opinion, the existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
The following table shows the Companys pro forma income (loss) from continuing operations before extraordinary loss
and earnings (loss) per share from continuing operations before extraordinary loss assuming the Company had accounted for its
employee stock options using the fair value method (in millions, except per share amounts):
2001
1999
$ (1,762)
(1,779)
$ (11.43)
(11.54)
$ 5.20
5.15
$ 4.30
4.27
$ (11.43)
(11.54)
$ 4.81
4.77
$ 4.17
4.14
779
772
656
651
32
The following table provides a reconciliation of the changes in the plans benefit obligations and fair value of assets for the
years ended December 31, 2001 and 2000, and a statement of funded status as of December 31, 2001 and 2000 (in millions):
Pension Benefits
2001
2000
Reconciliation of benefit obligation
Obligation at January 1
Service cost
Interest cost
Actuarial loss
Plan amendments
Acquisition of TWA
Benefit payments
Obligation at December 31
Reconciliation of fair value
of plan assets
Fair value of plan assets at January 1
Actual return on plan assets
Employer contributions
Benefit payments
Transfers
Fair value of plan assets at
December 31
Funded status
Accumulated benefit obligation (ABO)
Projected benefit obligation (PBO)
Accumulated postretirement benefit
obligation (APBO)
Fair value of assets
Funded status at December 31
Unrecognized loss (gain)
Unrecognized prior service cost
Unrecognized transition asset
Accrued benefit cost
6,434
260
515
416
168
(371)
7,422
5,731
1
121
(371)
-
5,628
213
467
499
(373)
6,434
5,282
735
85
(373)
2
5,482
6,041
7,422
5,482
(1,940)
1,454
286
(5)
(205)
1,708
66
175
205
(12)
734
(117)
2,759
88
(5)
129
(117)
-
72
5
88
(77)
-
5,731
95
88
5,306
6,434
5,731
Other Benefits
2000
2001
(703)
523
129
(6)
(57)
1,306
43
108
328
(77)
1,708
2,759
95
1,708
88
(2,664)
168
(42)
(2,538)
(1,620)
(51)
(35)
(1,706)
As of December 31, 2001, the accumulated benefit obligation and the fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets were approximately $4.2 billion and $3.6 billion, respectively.
At December 31, 2001 and 2000, other benefits plan assets of approximately $93 million and $88 million, respectively,
were invested in shares of mutual funds managed by a subsidiary of AMR.
33
The following tables provide the components of net periodic benefit cost for the years ended December 31, 2001, 2000
and 1999 (in millions):
Pension Benefits
2000
2001
Components of net periodic benefit cost
Defined benefit plans:
Service cost
Interest cost
Expected return on assets
Amortization of:
Transition asset
Prior service cost
Unrecognized net loss
Net periodic benefit cost for
defined benefit plans
Defined contribution plans
Total
260
515
(539)
213
467
(490)
(1)
11
22
268
244
512
2001
Components of net periodic benefit cost
Service cost
Interest cost
Expected return on assets
Amortization of:
Prior service cost
Unrecognized net gain
Net periodic benefit cost
236
433
(514)
(1)
10
17
216
174
390
(4)
5
21
Other Benefits
2000
66
175
(9)
(5)
227
1999
177
155
332
1999
43
108
(7)
(5)
(14)
125
56
108
(6)
(5)
153
The following table provides the amounts recognized in the consolidated balance sheets as of December 31, 2001 and 2000
(in millions):
Pension Benefits
2001
2000
123
$
107
(328)
(225)
(335)
(21)
163
72
172
10
(205)
$
(57)
Pension Benefits
2001
2000
Weighted-average assumptions as of
December 31
Discount rate
Salary scale
Expected return on plan assets
7.50%
4.26
9.50
7.75%
4.26
9.50
Other Benefits
2001
2000
$
(2,538)
(1,706)
(2,538)
$ (1,706)
Other Benefits
2001
2000
7.50%
9.50
7.75%
9.50
The assumed health care cost trend rate was six percent in 2001, decreasing gradually to an ultimate rate of 4.5 percent by
2004. The previously assumed health care cost trend rate was seven percent in 2000, decreasing gradually to an ultimate rate of
four percent by 2004.
34
A one percentage point change in the assumed health care cost trend rates would have the following effects (in millions):
One Percent
Decrease
$
(24)
One Percent
Increase
$
26
206
(196)
Minimum
Pension
Liability
$
(4)
3
(1)
(5)
(6)
(101)
Unrealized
Gain/(Loss)
on
Investments
$
(1)
(1)
5
4
3
Unrealized
Gain/(Loss)
on
Derivative
Financial
Instruments
$
-
Total
$
(4)
2
(2)
(2)
(98)
64
64
(62)
(62)
(107)
(48)
(46)
(48)
(146)
As of December 31, 2001, the Company estimates during the next twelve months it will reclassify from accumulated other
comprehensive loss into net earnings approximately $33 million relating to its derivative financial instruments.
35
2001
Numerator:
Numerator for earnings (loss) per share income
(loss) from continuing operations before
extraordinary loss
Denominator:
Denominator for basic earnings (loss) per share
weighted-average shares
(1,762)
154
656
152
27
(15)
12
154
150
779
1999
12
(7)
5
162
157
(11.43)
5.20
4.30
(11.43)
4.81
4.17
For the year ended December 31, 2001, approximately 11 million potential dilutive shares were not added to the
denominator because inclusion of such shares would be antidilutive.
14. Discontinued Operations
During the first quarter of 1999, the Company sold AMR Services, AMR Combs and TSR. As a result of these sales, the
Company recorded a gain of approximately $64 million, net of income taxes of approximately $19 million.
On February 7, 2000, the Company declared its intent to distribute AMRs entire ownership interest in Sabre as a dividend
on all outstanding shares of its common stock. To effect the dividend, AMR exchanged all of its 107,374,000 shares of Sabres
Class B common stock for an equal number of shares of Sabres Class A common stock. Effective after the close of business on
March 15, 2000, AMR distributed 0.722652 shares of Sabre Class A common stock for each share of AMR stock owned by
AMRs shareholders. The record date for the dividend of Sabre stock was the close of business on March 1, 2000. In addition,
on February 18, 2000, Sabre paid a special one-time cash dividend of $675 million to shareholders of record of Sabre common
stock at the close of business on February 15, 2000. Based upon its approximate 83 percent interest in Sabre, AMR received
approximately $559 million of this dividend. The dividend of AMRs entire ownership interest in Sabres common stock resulted
in a reduction to AMRs retained earnings in March of 2000 equal to the carrying value of the Companys investment in Sabre
on March 15, 2000, which approximated $581 million. The fair market value of AMRs investment in Sabre on March 15, 2000,
based upon the quoted market closing price of Sabre Class A common stock on the New York Stock Exchange, was approximately
$5.2 billion. In addition, effective March 15, 2000, the Company reduced the exercise price and increased the number of
employee stock options and awards by approximately 19 million to offset the dilution to the holders, which occurred as a result
of the spin-off. These changes were made to keep the holders in the same economic position as before the spin-off. This dilution
adjustment was determined in accordance with Emerging Issues Task Force Consensus No. 90-9, Changes to Fixed Employee
Stock Option Plans as a Result of Equity Restructuring, and had no impact on earnings.
36
The results of operations for Sabre, AMR Services, AMR Combs and TSR have been reflected in the consolidated
statements of operations as discontinued operations. Summarized financial information of the discontinued operations is
as follows (in millions):
Year Ended December 31,
2000
1999
Sabre
Revenues
Minority interest
Income taxes
Net income
AMR Services, AMR Combs and TSR
Revenues
Income taxes
Net income
542
10
36
43
2,435
57
196
265
97
-
Domestic
Latin America
Europe
Pacific
Total consolidated revenues
2001
13,657
2,732
2,076
498
18,963
1999
12,563
2,697
1,984
486
17,730
The Company attributes operating revenues by geographic region based upon the origin and destination of each flight
segment. The Companys tangible assets consist primarily of flight equipment which is mobile across geographic markets and,
therefore, has not been allocated.
37
Second
Quarter
4,760
(4)
(43)
(0.28)
(0.28)
5,583
(760)
(507)
Third
Quarter
$
(3.29)
(3.29)
4,577
212
5,011
517
4,816
(558)
(414)
Fourth
Quarter
$
(2.68)
(2.68)
5,256
572
3,804
(1,148)
(798)
(5.17)
(5.17)
4,859
80
89
132
321
321
322
313
47
47
0.60
0.89
2.15
2.15
2.14
2.08
0.31
0.31
0.57
0.86
1.96
1.96
1.96
1.91
0.29
0.29
* Certain amounts for the first quarter of 2001 related to the Companys fuel hedging program have been reclassified to conform with
the 2001 presentation.
The following table summarizes the special charges net of U.S. Government grant recorded by the Company during the
second, third and fourth quarters of 2001 (in millions):
Aircraft charges
Facility exit costs
Employee charges
Other
Total special charges
Less: U.S. Government grant
Second
Quarter
$
685
685
$
685
Third
Quarter
$
496
61
55
20
632
(809)
$
(177)
Fourth
Quarter
$
56
54
16
23
149
(47)
$
102
See Note 2 for a further discussion of special charges net of U.S. Government grant.
In addition to the above items, during the second quarter of 2001, the Company recorded a gain of $45 million from the
settlement of a legal matter related to the Companys 1999 labor disruption.
During the second quarter of 2000, the Company recorded a gain of approximately $57 million from the sale of the
Companys warrants to purchase 5.5 million shares of priceline common stock (see Note 4). During the third quarter of 2000, the
Company recorded a $14 million extraordinary loss on the repurchase prior to scheduled maturity of long-term debt (see Note 7).
Results for the fourth quarter of 2000 included a gain of approximately $41 million for the recovery of start-up expenses related to
the Canadian services agreement (see Note 4) and a charge of approximately $56 million for the Companys employee home
computer program.
38
39
REPORT OF MANAGEMENT
The management of AMR Corporation is responsible for the integrity and objectivity of the Companys financial
statements and related information. The financial statements have been prepared in conformity with accounting principles
generally accepted in the United States and reflect certain estimates and judgments of management as to matters set forth therein.
AMR maintains a system of internal controls designed to provide reasonable assurance, at reasonable cost, that its financial
records can be relied upon in the preparation of financial statements and that its assets are safeguarded against loss or unauthorized
use. An important element of the Companys control systems is the ongoing program to promote control consciousness
throughout the organization. Managements commitment to the program is evidenced by organizational arrangements that
provide for divisions of responsibility, effective communication of policies and procedures, selection of competent financial
managers and development and maintenance of financial planning and reporting systems.
Management continually monitors the system for compliance. AMR maintains a strong internal auditing program
that independently assesses the effectiveness of the internal controls and recommends possible improvements. Ernst & Young,
independent auditors, is engaged to audit the Companys financial statements. Ernst & Young obtains and maintains an understanding of the internal control structure and conducts such tests and other auditing procedures considered necessary in the
circumstances to render the opinion on the financial statements contained in their report.
The Audit Committee of the Board of Directors, composed entirely of independent directors, meets regularly with the
independent auditors, management and internal auditors to review their work and confirm that they are properly discharging
their responsibilities. In addition, the independent auditors and the internal auditors meet periodically with the Audit Committee,
without the presence of management, to discuss the results of their work and other relevant matters.
Donald J. Carty
Chairman, President and Chief Executive Officer
Thomas W. Horton
Senior Vice President and Chief Financial Officer
40
Seating
Capacity
Owned
Capital
Leased
Operating
Leased
Total
Average
Age (Years)
178/250/251
138
134
176
160
10
33
67
75
8
11
-
24
10
31
-
34
33
77
117
8
12
23
1
8
19
158
12
21
16
190/228
32
10
49
223/245/252
87
129
40
67
130
471
3
20
53
4
109
188
40
74
259
712
2
9
14
10
30
27
30
27
1
4
215/233
131
19
19
23
23
9
61
127
9
103
169
7
9
7
46
70
37
44
50
64/66
34
34
20
1
40
15
56
40
17
189
49
49
10
3
25
38
30
1
40
15
56
43
66
25
276
11
2
3
7
10
6
7
100
168
The Boeing 727-200 fleet will be removed from service by May 2002.
The Boeing 717-200 fleet will be removed from service by June 2002.
In addition, the following owned and leased aircraft were not operated by the Company as of December 31, 2001:
15 owned and five operating leased Boeing 727-200s, 16 operating leased McDonnell Douglas DC-9s, 10 owned McDonnell
Douglas DC-10-10s, six operating leased and one owned McDonnell Douglas MD-80s, three owned McDonnell Douglas
MD-11s, two owned McDonnell Douglas DC-10-30s, and five owned, six capital leased and three operating leased Saab 340Bs.
41
BOARD OF DIRECTORS
BOARD OF DIRECTORS
John W. Bachmann
Managing Partner
Edward Jones
(Financial Services)
St. Louis, Missouri
Named a Director in 2001
David L. Boren
President
University of Oklahoma
(Educational Institution)
Norman, Oklahoma
Elected in 1994
Edward A. Brennan
Retired Chairman, President
and Chief Executive Officer
Sears, Roebuck and Co.
(Merchandising)
Chicago, Illinois
Elected in 1987
Donald J. Carty
Chairman, President and
Chief Executive Officer
AMR Corporation/
American Airlines, Inc.
(Air Transportation)
Fort Worth, Texas
Elected in 1998
Armando M. Codina
Chairman and Chief Executive Officer
Codina Group, Inc.
(Real Estate Investments,
Development and Construction,
Property Management
and Brokerage Services)
Coral Gables, Florida
Elected in 1995
Earl G. Graves
Chairman and Chief Executive Officer
Earl G. Graves, Limited
(Communications and Publishing)
Publisher and Chief Executive Officer
Black Enterprise Magazine
General Partner Black
Enterprise/Greenwich Street
Corporate Growth Partners, L.P.
New York, New York
Elected in 1995
BOARD COMMITTEES
EXECUTIVE COMMITTEE
Philip J. Purcell
Chairman and Chief Executive Officer
Morgan Stanley Dean Witter & Co.
(Financial Services)
New York, New York
Elected in 2000
Joe M. Rodgers
Chairman
The JMR Group
(Investment Company)
Nashville, Tennessee
Elected in 1989
Judith Rodin
President
University of Pennsylvania
(Educational Institution)
Philadelphia, Pennsylvania
Elected in 1997
Roger Staubach
Chairman and Chief Executive Officer
The Staubach Group
(Real Estate Services)
Addison, Texas
Named a Director in 2001
42
Donald J. Carty*
Chairman, President and
Chief Executive Officer
Timothy J. Ahern
Vice President
Safety, Security and
Environmental
Robert W. Baker*
Vice Chairman
Jane G. Allen
Vice President
Flight Service
Gerard J. Arpey*
Executive Vice President
Operations
Walter J. Aue
Vice President
Capacity Planning
Daniel P. Garton*
Executive Vice President
Customer Service
James A. Beer
Vice President
Corporate Development
and Treasurer
Michael W. Gunn*
Executive Vice President
Marketing and Planning
Peter J. Dolara
Senior Vice President
Miami, Caribbean and
Latin America
Monte E. Ford
Senior Vice President
Information Technology
and Chief Information
Officer
Thomas W. Horton*
Senior Vice President
Finance and Chief
Financial Officer
Dan P. Huffman
Senior Vice President
Maintenance and
Engineering
Henry C. Joyner
Senior Vice President
Planning
Anne H. McNamara*
Senior Vice President and
General Counsel
David R. Brooks
President
American Airlines
Cargo Division
Jeffrey J. Brundage
Vice President
Employee Policy and
Relations
David L. Campbell
Vice President
Alliance Base
Maintenance
Jeffrey C. Campbell
Vice President
Europe
John A. Carpenter
Vice President
Corporate Affairs
Robert C. Cordes
Vice President
St. Louis
Lauri L. Curtis
Vice President
Reservations and eTDS
Susan M. Oliver
Senior Vice President
Human Resources
C. David Cush
Vice President
International Planning
and Alliances
Timothy J. Doke
Vice President
Corporate Communications
Bella D. Goren
Vice President
Customer Services Planning
William T. Greene
Vice President
Finance and Planning
for Maintenance
and Engineering
Ralph L. Richardi
Vice President
Operations Planning
and Performance
Carmine J. Romano
Vice President
Tulsa Base Maintenance
John R. Samuel
Vice President
Customer Technology
Gregory F. Hall
Vice President
Line Maintenance
Di Ann Sanchez
Vice President
Diversity and Talent
Management
Douglas G. Herring
Vice President and
Controller
Peggy E. Sterling
Vice President
Dallas/Fort Worth
Gary F. Kennedy
Vice President
Corporate Real Estate
Andrew O. Watson
Vice President
e-Business
Craig S. Kreeger
Vice President and
General Sales Manager
Kenneth D. Wilcox
Vice President
Technology Services
Robert P. Kudwa
Vice President
Flight
Carolyn E. Wright
Vice President
Human Resources
Strategic Partnerships
Dennis LeBright
Vice President
Miami
AMERICAN EAGLE
AIRLINES, INC.
John R. MacLean
Vice President
Purchasing
Peter M. Bowler
President
Charles D. MarLett*
Corporate Secretary
Thomas F. Bacon
Senior Vice President
Marketing and Planning
Scott D. Nason
Vice President
Operations Technology,
Research and Analysis
R. Stan Henderson
Senior Vice President
Customer Services
Robert E. Olson
Vice President
Revenue Management
Randy H. Phillips
Vice President
Engineering and Quality
Assurance
Bernard J. DeSena
Vice President Chicago
* AMR Corporation Officers
43
Robert W. Reding
Chief Operations Officer
AMR INVESTMENT
SERVICES, INC.
William F. Quinn
President
CORPORATE INFORMATION
STOCK EXCHANGES
9%, 9.88%
FORM 10-K
AND
10.20% DEBENTURES
Corporate Secretary
AMR Corporation
Mail Drop 5675
P.O. Box 619616
Dallas/Fort Worth Airport, TX 75261-9616
9% DEBENTURES
COMMON STOCK
PRINCIPAL O FFICES
AMR Corporation
Mail Drop 5675
P.O. Box 619616
Dallas/Fort Worth Airport, TX 75261-9616
(817) 963-1234
Trustees
The Bank of New York
101 Barclay Street
New York, NY 10286
Citibank, N.A.
111 Wall Street
New York, NY 10043
Paying Agents
Chase Manhattan Bank
Corporate Trust Securities Window
Room 234 North Building
55 Water Street
New York, NY 10041
Citibank, N.A.
111 Wall Street
New York, NY 10043
44
MARKET PRICE
AND
DIVIDENDS
Common Stock*
High
Low
2001
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$ 43 34
39 38
37 1516
23 516
$ 31
33
17
16
16
1
4
7
8
1
2
$ 67 38
37 78
34 1116
39 316
$ 30
26 716
26 18
27 1516
2000**
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Shareholders can also visit AMRs Internet site on the World Wide Web at www.amrcorp.com
to receive financial and other company information, or to request a printed copy of financial
materials.
Additionally, shareholders in the United States, Canada and most of the Caribbean can
call (800) AMR-6177 to hear the most recent quarterly results or request a printed copy of
financial materials. Shareholders residing in other areas should call (402) 573-9855.
2002 quarterly results will be released on the following dates with the shareholder
information line and Web site updated shortly thereafter:
First Quarter:
Second Quarter:
Third Quarter:
Fourth Quarter:
AMR CORPORATION
P.O. Box 619616, Dallas/Fort Worth, Texas 75261-9616
The American Airlines internet address is www.aa.com
The AMR internet address is www.amrcorp.com