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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950134-01-002483.txt : 20010323
<SEC-HEADER>0000950134-01-002483.hdr.sgml : 20010323
ACCESSION NUMBER: 0000950134-01-002483
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 22
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010322
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AMR CORP
CENTRAL INDEX KEY: 0000006201
STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512]
IRS NUMBER: 751825172
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-08400
FILM NUMBER: 1576557
BUSINESS ADDRESS:
STREET 1: 4333 AMON CARTER BLVD
CITY: FORT WORTH
STATE: TX
ZIP: 76155
BUSINESS PHONE: 8179631234
MAIL ADDRESS:
STREET 1: 4333 AMON CARTER BLVD
CITY: FORT WORTH
STATE: TX
ZIP: 75261-9616
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>d84957e10-k405.txt
<DESCRIPTION>FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2000
<TEXT>
<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For fiscal year ended December 31, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-8400.
------
AMR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1825172
- --------------------------------- -------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
- --------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
- --------------------------------------- -------------------------------------
Common stock, $1 par value per share New York Stock Exchange
9.00% Debentures due 2016 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 16, 2001, was approximately $5,190,797,127. As of March
16, 2001, 153,619,329 shares of the registrant's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from
the Proxy Statement for the Annual Meeting of Stockholders to be held May 16,
2001.
================================================================================
<PAGE> 2
PART I
- --------------------------------------------------------------------------------
ITEM 1. BUSINESS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMR's
operations fall almost entirely in the airline industry. AMR's principal
subsidiary, American Airlines, Inc. (American), was founded in 1934. American is
one of the largest scheduled passenger airlines in the world. At the end of
2000, American provided scheduled jet service to more than 169 destinations
throughout North America, the Caribbean, Latin America, Europe and the Pacific.
American is also one of the largest scheduled air freight carriers in the world,
providing a full range of freight and mail services to shippers throughout its
system.
In addition, AMR Eagle Holding Corporation (AMR Eagle), a wholly-owned
subsidiary of AMR, owns two regional airlines which do business as "American
Eagle" -- American Eagle Airlines, Inc. and Executive Airlines, Inc. Business
Express, Inc. was merged into American Eagle Airlines, Inc. in December 2000.
The American Eagle carriers provide connecting service from eight of American's
high-traffic cities to smaller markets throughout the United States, Canada, the
Bahamas and the Caribbean.
AMR Investment Services, Inc., a wholly-owned subsidiary of AMR, is
responsible for the investment and oversight of AMR's defined benefit and
defined contribution plans, as well as its fixed income investments. It serves
as manager of the American AAdvantage Funds, a family of mutual funds with both
institutional and retail shareholders, and provides customized fixed income
portfolio management services. As of December 31, 2000, AMR Investment Services
was responsible for management of approximately $22.9 billion in assets,
including direct management of approximately $10.5 billion in short-term fixed
income investments.
Effective after the close of business on March 15, 2000, AMR distributed
0.722652 shares of Sabre Holdings Corporation (Sabre) Class A Common Stock for
each share of AMR stock owned by AMR's shareholders, thus distributing its
entire ownership interest in Sabre. As such, Sabre has been treated as a
discontinued operation in Item 6 - Selected Consolidated Financial Data, Item 7
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8 - Consolidated Financial Statements. In addition, the
discussion in the other Items of this Form 10-K relates primarily to American
and AMR Eagle.
On January 10, 2001, the Company announced three transactions that are
expected to substantially increase the scope of its existing network. First, the
Company announced that it had agreed to purchase substantially all of the assets
of Trans World Airlines, Inc. (TWA) for approximately $500 million in cash and
to assume approximately $3.5 billion of TWA's obligations. The Company's
agreement with TWA contemplated that TWA would file for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code and conduct an auction of its
assets under the auspices of the Bankruptcy Court. During the auction, other
credible offers would compete with the Company's offer. TWA filed for bankruptcy
protection on January 10, 2001. In conjunction therewith, the Company also
agreed to provide TWA with up to $200 million in debtor-in-possession financing
to facilitate TWA's ability to maintain its operations until the completion of
this transaction. The amount available under this facility was later increased
to $330 million. As of March 19, 2001, approximately $289 million had been
provided via the debtor-in-possession financing.
1
<PAGE> 3
The auction of TWA's assets was commenced on March 5, 2001, and recessed
to March 7, 2001. During the recess, the Company increased its cash bid to $625
million and agreed to leave in the TWA estate certain aircraft security
deposits, advance rental payments and rental rebates that were estimated to
bring approximately $117 million of value to TWA. The Company expects that the
increase in the Company's bid will be more than offset, however, by the benefit
to the Company of the reductions in rental rates the Company has negotiated with
TWA's aircraft lessors. On March 7, 2001, TWA's board selected the Company's bid
as the "highest and best" offer, and on March 12, 2001, the U.S. Bankruptcy
Court, District of Delaware, entered an order approving the sale of TWA's assets
to the Company. Consummation of the transaction is subject to several
contingencies, including the waiver by TWA's unions of certain provisions of
their collective bargaining agreements. The approval of the U.S. Department of
Justice (DOJ) was obtained on March 16, 2001. Certain parties have filed appeals
of the Bankruptcy Court's sale order, and have sought a stay of the transaction,
pending the appeals. A provision of the Bankruptcy Code will permit the Company
to close the transaction, despite pending appeals, unless a stay is granted. If
a stay is granted, the Company would anticipate that the appeal process would be
expedited. Upon the closing of the transaction, TWA will be integrated into
American's operations with a continued hub operation in St. Louis.
Secondly, the Company announced that it has agreed to acquire from United
Airlines, Inc. (United) certain key strategic assets (slots, gates and aircraft)
of US Airways, Inc. (US Airways) upon the consummation of the previously
announced merger between United and US Airways. In addition to the acquisition
of these assets, American will lease a number of slots and gates from United so
that American may operate half of the northeast Shuttle (New York/Washington
DC/Boston). United will operate the other half of the Shuttle. For these assets,
American will pay approximately $1.2 billion in cash to United and assume
approximately $300 million in aircraft operating leases. The consummation of
these transactions is contingent upon the closing of the proposed United/US
Airways merger. Also, the acquisition of aircraft is generally dependent upon a
certain number of US Airways' Boeing 757 cockpit crew members transferring to
American's payroll.
Finally, American has agreed to acquire a 49 percent stake in, and to
enter into an exclusive marketing agreement with, DC Air LLC (DC Air). American
has agreed to pay $82 million in cash for its ownership stake. American will
have a right of first refusal on the acquisition of the remaining 51 percent
stake in DC Air. American will also lease to DC Air a certain number of Fokker
100 aircraft with necessary crews (known in the industry as a "wet lease").
These wet leased aircraft will be used by DC Air in its operations. DC Air is
the first significant new entrant at Ronald Reagan Washington National Airport
(DCA) in over a decade. DC Air will acquire the assets needed to begin its DCA
operations from United/US Airways upon the consummation of the merger between
the two carriers. American's investment in DC Air and the other arrangements
described above are contingent upon the consummation of the merger between
United and US Airways.
As a result of the above transactions, and for several other reasons,
American and American Eagle have initiated an impairment review of certain fleet
types 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." This review could result in an impairment charge to be taken by
the Company in 2001. The size of any resulting 2001 charge is not presently
known, but may be significant.
COMPETITION
Most major air carriers have developed hub-and-spoke systems and schedule
patterns in an effort to maximize the revenue potential of their service.
American operates four hubs: Dallas/Fort Worth (DFW), Chicago O'Hare, Miami and
San Juan, Puerto Rico. Delta Air Lines and United Airlines also have hub
operations at DFW and Chicago O'Hare, respectively.
The American Eagle carriers increase the number of markets the Company
serves by providing connections to American at American's hubs and certain other
major airports. The American Eagle carriers serve smaller markets through
Boston, DFW, Chicago, Miami, San Juan, Los Angeles and New York's LaGuardia and
John F. Kennedy International Airports. American's competitors also own or have
marketing agreements with regional carriers which provide similar services at
their major hubs.
2
<PAGE> 4
In addition to its extensive domestic service, the Company provides
international service to the Caribbean, Canada, Latin America, Europe and the
Pacific. The Company's operating revenues from foreign operations were
approximately $5.8 billion in 2000, $5.2 billion in 1999 and $5.3 billion in
1998. Additional information about the Company's foreign operations is included
in Note 13 to the consolidated financial statements.
The domestic airline industry is fiercely competitive. Currently, any
carrier deemed fit by the U.S. Department of Transportation (DOT) is free to
operate scheduled passenger service between any two points within the U.S. and
its possessions. On most of its domestic non-stop routes, the Company faces
competing service from at least one, and sometimes more than one, major domestic
airline including: Alaska Airlines, America West Airlines, Continental Airlines,
Delta Air Lines, Northwest Airlines, Southwest Airlines, TWA, United, US Airways
and their affiliated regional carriers. Competition is even greater between
cities that require a connection, where as many as nine airlines may compete via
their respective hubs. The Company also competes with national, regional,
all-cargo and charter carriers and, particularly on shorter segments, ground
transportation. In addition, on all of its routes, pricing decisions are
affected, in part, by competition from other airlines, some of which have cost
structures significantly lower than American's and can therefore operate
profitably at lower fare levels.
The majority of the tickets for travel on American and American Eagle are
sold by travel agents. Domestic travel agents generally receive a base
commission of five percent of the price of the tickets they sell. This amount is
capped at a maximum of $50 for a domestic roundtrip itinerary and $100 for an
international roundtrip itinerary. Airlines often pay additional commissions in
connection with special revenue programs. Accordingly, airlines compete not only
with respect to the price of the tickets sold but also with respect to the
amount of commissions paid.
The growing use of electronic distribution systems provides the Company
with an ever-increasing ability to lower its distribution costs. The Company
continues to expand the capabilities of its Internet website - AA.com - and the
use of electronic ticketing throughout the Company's network. In addition, the
Company has entered into various agreements with several Internet travel
providers, including Travelocity.com, Expedia, priceline.com and Hotwire. The
base commission for sales through Internet travel providers is significantly
lower than traditional travel agencies.
International air transportation is subject to extensive government
regulation. In providing international air transportation, American competes
with foreign investor-owned carriers, state-owned carriers and U.S. airlines
that have been granted authority to provide scheduled passenger and cargo
service between the U.S. and various overseas locations. American's operating
authority in these markets is subject to aviation agreements between the U.S.
and the respective countries, and in some cases, fares and schedules require the
approval of the DOT and/or the relevant foreign governments. Because
international air transportation is governed by bilateral or other agreements
between the U.S. and the foreign country or countries involved, changes in U.S.
or foreign government aviation policies could result in the alteration or
termination of such agreements, diminish the value of such route authorities, or
otherwise adversely affect American's international operations. Bilateral
agreements between the U.S. and various foreign countries served by American are
subject to frequent renegotiation. In addition, at most foreign airports, a
carrier needs slots (landing and take-off authorizations) before the carrier can
introduce new service or increase existing service. The availability of such
slots is not assured and can therefore inhibit a carrier's efforts to compete in
certain markets.
The major U.S. carriers have some advantage over foreign competitors in
their ability to generate traffic from their extensive domestic route systems.
In many cases, however, foreign governments, which own and subsidize some of
American's foreign competitors, limit U.S. carriers' rights to carry passengers
beyond designated gateway cities in foreign countries. To improve access to each
other's markets, various U.S. and foreign carriers -- including American -- have
established marketing relationships with other airlines. American currently has
code-sharing programs with Aer Lingus, Air Pacific, Alaska Airlines, Asiana
Airlines, China Eastern Airlines, EVA Air, Finnair, Gulf Air, Hawaiian Airlines,
Iberia, Japan Airlines, LanChile, LOT Polish Airlines, Qantas Airways, Sabena,
SNCF, Swissair, TACA Group, the TAM Group, TAP Air Portugal, Thalys and Turkish
Airlines. American Eagle also has code-sharing programs with Continental
Airlines, Northwest Airlines, TWA and Midwest Express, in addition to
code-sharing with some of American's code-share partners. Certain of these
relationships also include reciprocity between American and the other airlines'
frequent flyer programs. In addition, the Company expects to implement or expand
alliances with other international carriers, including British Airways, Cathay
Pacific Airways,
3
<PAGE> 5
China Eastern Airlines and Qantas New Zealand, pending regulatory approval. In
the coming years, the Company expects to develop these programs further and to
evaluate new alliances with other international carriers.
In February 1999, American, British Airways, Canadian Airlines
International Limited (Canadian), Cathay Pacific Airways and Qantas Airways
formed the global alliance ONEworld(TM). In September 1999, these five founding
members were joined by Finnair and Iberia. Also, in June 2000, Aer Lingus and
LanChile joined the ONEworld alliance. The ONEworld alliance links the networks
of the member carriers to enhance customer service and smooth connections to the
destinations served by the alliance, including linking the carriers' frequent
flyer programs and access to the carriers' airport lounge facilities. Following
the acquisition of Canadian by Air Canada, Canadian terminated its membership in
ONEworld in June 2000.
The Company believes that it has several advantages relative to its
competition. Its fleet is efficient and quiet, and is one of the youngest fleets
in the U.S. airline industry. It has a comprehensive domestic and international
route structure, anchored by efficient hubs, which permit it to take full
advantage of whatever traffic growth occurs. The Company believes American's
AAdvantage frequent flyer program, which is the largest program in the industry,
its More Room Throughout Coach program and its superior service also give it a
competitive advantage to its competition.
REGULATION
GENERAL The Airline Deregulation Act of 1978, as amended, eliminated most
domestic economic regulation of passenger and freight transportation. However,
the DOT and the Federal Aviation Administration (FAA) still exercise certain
regulatory authority over air carriers. The DOT maintains jurisdiction over the
approval of international codeshare agreements, international route authorities
and certain consumer protection matters, such as advertising, denied boarding
compensation and baggage liability.
The FAA regulates flying operations generally, including establishing
personnel, aircraft and security standards. As part of that oversight, the FAA
has implemented a number of requirements that American is incorporating into its
maintenance program. These matters relate to, among other things, inspection and
maintenance of aging aircraft, corrosion control, the installation of upgraded
digital flight data recorders, enhanced ground proximity warning systems, cargo
compartment smoke detection and fire suppression systems, McDonnell Douglas MD
80 metal-mylar insulation replacement, and required inspections of General
Electric compressor spools. Based on its current implementation schedule,
American expects to be in compliance with the applicable requirements within the
required time periods.
The DOJ has jurisdiction over airline antitrust matters. The U.S. Postal
Service has jurisdiction over certain aspects of the transportation of mail and
related services. Labor relations in the air transportation industry are
regulated under the Railway Labor Act, which vests in the National Mediation
Board certain regulatory functions with respect to disputes between airlines and
labor unions relating to union representation and collective bargaining
agreements. To the extent American continues to increase its alliances with
international carriers, American may be subject to certain regulations of
foreign agencies.
In April 1998, the DOT issued proposed pricing and capacity rules that
would severely limit major carriers' ability to compete with new entrant
carriers. In January 2001, following a multi-year investigation and public
docket concerning competition between major carriers and new entrant carriers,
the DOT restated its concerns with competitive practices in the industry, but
declined to issue specific competitive guidelines. In its statement of findings
and conclusions, the DOT reiterated its view that it had both the authority and
the obligation to prevent what it considers to be unfair competitive practices
in the industry, and indicated its intent to pursue enforcement actions on a
case-by-case basis. To the extent that future DOT enforcement actions either
directly or indirectly impose restrictions upon American's ability to respond to
competitors, American's business may be adversely impacted.
As described in Item 3. Legal Proceedings, the Antitrust Division of the
DOJ and several purported classes of private parties are pursuing litigation
alleging that American violated federal antitrust laws when competing with new
carriers. Although the Company believes that the litigation is without merit,
adverse court decisions could impose restrictions on American's ability to
respond to competitors, and American's business may be adversely impacted.
4
<PAGE> 6
AIRLINE FARES Airlines are permitted to establish their own domestic fares
without governmental regulation, and the industry is characterized by
substantial price competition. The DOT maintains authority over international
fares, rates and charges. International fares and rates are also subject to the
jurisdiction of the governments of the foreign countries which American serves.
While air carriers are required to file and adhere to international fare and
rate tariffs, substantial commissions, overrides and discounts to travel agents,
brokers and wholesalers characterize many international markets.
Legislation (sometimes referred to as the "Passengers' Bill of Rights")
has been discussed in various legislatures (including the Congress). This
legislation could, if enacted, (i) place various limitations on airline fares
and/or (ii) affect operating practices such as baggage handling and overbooking.
Effective December 15, 1999, the Company, as well as other domestic airlines,
implemented a Customer Service Plan to address a number of service goals,
including, but not limited to (i) lowest fare availability, (ii) delays,
cancellations, and diversion events, (iii) baggage delivery and liability, (iv)
guaranteed fares, (v) ticket refunds, (vi) accommodation of customers with
special needs, (vii) essential customer needs during extraordinary delays,
(viii) flight oversales, (ix) Frequent Flyer Program - AAdvantage, (x) other
travel policies, (xi) service with domestic code share partners, and (xii)
handling of customer issues. In February 2001, the DOT Inspector General issued
a report on the various carriers' performance of their Customer Service Plans.
The report included a number of recommendations which could limit American's
flexibility with respect to various operational practices. In February 2001, a
bill proposing an "Airline Customer Service Improvement Act" was introduced in
the United States Senate. In addition, other items of legislation have been
introduced that would limit hub concentration, reallocate slots at certain
airports and impose higher landing fees at certain hours. To the extent
legislation is enacted that would inhibit American's flexibility with respect to
fares, its revenue management system, its operations or other aspects of its
customer service operations, American's financial results could be adversely
affected.
Fare discounting by competitors has historically had a negative effect on
the Company's financial results because the Company is generally required to
match competitors' fares to maintain passenger traffic. During recent years, a
number of new low-cost airlines have entered the domestic market and several
major airlines, including American, implemented efforts to lower their cost
structures. Further fare reductions, domestic and international, may occur in
the future. If fare reductions are not offset by increases in passenger traffic,
cost reductions or changes in the mix of traffic that improves yields, the
Company's operating results will be negatively impacted.
AIRPORT ACCESS In 1968, the FAA issued a rule designating New York John F.
Kennedy, New York LaGuardia, Washington Reagan, Chicago O'Hare and Newark
airports as high-density traffic airports. Newark was subsequently removed from
the high-density airport classification. The high-density rule (HDR) limits the
number of Instrument Flight Rule (IFR) operations - take-offs and landings -
permitted per hour and requires that a slot support each operation. In April
2000, legislation was signed to (i) eliminate slot restrictions at New York's
John F. Kennedy and LaGuardia airports in 2007, (ii) shrink Chicago O'Hare's
slot day from 0645 - 2114 hours to 1445 - 2014 hours starting July 2001, and
(iii) eliminate Chicago O'Hare slots in July 2002. The Company does not expect
the elimination of slot restrictions to have a material adverse impact on the
Company's operations and its financial condition or result of operations.
Pursuant to the Wendell H. Ford Aviation Investment and Reform Act for
the 21st Century (Air 21 Act), slot restrictions were lifted for service to/from
LaGuardia and certain cities classified as small and non-hub airports (new
service cities). This increase in service is to be operated by regional jets. As
a consequence, the Company and other carriers increased their service at
LaGuardia to the new service cities. In December 2000, the DOT held a lottery
for LaGuardia slots for service to the new service cities in order to ease
congestion at the airport. The congestion was a direct result of the growth of
Air 21 Act slot operations. While the Company has scaled back its service to the
new service cities to/from LaGuardia, it is not anticipated that this reduction
will have a material impact on the Company's operations and its financial
condition or result of operations.
At December 31, 2000, the net book value of the Company's slots at New
York John F. Kennedy, New York LaGuardia and Chicago O'Hare airports was
approximately $183 million. Currently, the FAA permits the purchasing, selling,
leasing or transferring of slots except those slots designated as international,
essential air service or Air 21 Act. Trading of any slot is permitted subject to
certain parameters. Most foreign airports, including London Heathrow, a major
European destination for American, also have slot allocations. Most foreign
authorities do not permit the purchasing, selling or leasing of slots.
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<PAGE> 7
Although the Company is constrained by slots, it currently has sufficient
slot authorizations to operate its existing flights and has generally been able
to obtain slots to expand its operations and change its schedules. However,
there is no assurance that the Company will be able to obtain slots for these
purposes in the future because, among other factors, domestic slot allocations
are subject to changes in government policies.
ENVIRONMENTAL MATTERS The Company is subject to various laws and government
regulations concerning environmental matters and employee safety and health in
the U.S. and other countries. U.S. federal laws that have a particular impact on
the Company include the Airport Noise and Capacity Act of 1990 (ANCA), the Clean
Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the
Safe Drinking Water Act, and the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or the Superfund Act). The Company is
also subject to the oversight of the Occupational Safety and Health
Administration (OSHA) concerning employee safety and health matters. The U.S.
Environmental Protection Agency (EPA), OSHA, and other federal agencies have
been authorized to promulgate regulations that have an impact on the Company's
operations. In addition to these federal activities, various states have been
delegated certain authorities under the aforementioned federal statutes. Many
state and local governments have adopted environmental and employee safety and
health laws and regulations, some of which are similar to federal requirements.
As a part of its continuing safety, health and environmental program, the
Company anticipates that it will comply with such requirements without any
material adverse effect on its business.
The ANCA recognizes the rights of airport operators with noise problems
to implement local noise abatement programs so long as they do not interfere
unreasonably with interstate or foreign commerce or the national air
transportation system. Authorities in several cities have promulgated aircraft
noise reduction programs, including the imposition of nighttime curfews. The
ANCA generally requires FAA approval of local noise restrictions on aircraft.
While American has had sufficient scheduling flexibility to accommodate local
noise restrictions imposed to date, American's operations could be adversely
affected if locally-imposed regulations become more restrictive or widespread.
American has been identified by the EPA as a potentially responsible
party (PRP) at the Operating Industries, Inc. Superfund Site in California.
American has signed a partial consent decree with respect to this site and is
one of several PRPs named. American has also been identified as a PRP at the
Beede Waste Oil Superfund Site in New Hampshire. American has responded to a
104(e) Request for Information regarding interaction with several companies
related to this site. At the Operating Industries, Inc. and the Beede Waste Oil
sites, American's alleged waste disposal volumes are minor compared to the other
PRPs at these sites. In 1998, the EPA named American a de minimis PRP at the
Casmalia Waste Disposal Site in California.
American, along with most other tenants at the San Francisco
International Airport (SFIA), has been ordered by the California Regional Water
Quality Control Board to engage in various studies of potential environmental
contamination at the airport and to undertake remedial measures, if necessary.
SFIA is also seeking to recover its past costs related to the contamination from
the tenants.
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues and
other cost recovery methods. Future costs of the remediation effort may be borne
by carriers operating at the Airport, including American, through increased
landing fees and/or other charges since certain of the PRPs are no longer in
business. The future increase in landing fees and/or other charges may be
material but 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 1999, American was ordered by the New York State Department of
Environmental Conservation to conduct remediation of environmental contamination
located at Terminals 8 and 9 at New York's John F. Kennedy International
Airport. American is seeking to recover a portion of the related costs from
previous users of the premises.
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<PAGE> 8
Also in 1999, the Company entered a plea agreement with the United States
government with respect to a one count indictment relating to the storage of
hazardous materials. As part of the plea agreement, the Company was placed on
probation for three years and has adopted a comprehensive compliance program. To
the extent the Company fails to abide by the terms of the probation or its
compliance program, the Company's operations may be adversely impacted.
American and Executive Airlines, Inc., along with other tenants at the
Luis Munoz Marin International Airport in San Juan, Puerto Rico, have been named
as PRPs for environmental claims at the airport.
American Eagle Airlines, Inc. has been notified of its potential
liability under New York law at an inactive hazardous waste site in
Poughkeepsie, New York.
AMR does not expect these matters, individually or collectively, to have
a material impact on its financial position, results of operations or liquidity.
LABOR
The airline business is labor intensive. Wages, salaries and benefits
represented approximately 37 percent of AMR's consolidated operating expenses
for the year ended December 31, 2000.
The majority of American's employees are represented by labor unions and
covered by collective bargaining agreements. American's relations with such
labor organizations are governed by the Railway Labor Act. Under this act, the
collective bargaining agreements among American and these organizations do not
expire but instead become amendable as of a stated date. If either party wishes
to modify the terms of any such agreement, it must notify the other party in the
manner described in the agreement. After receipt of such notice, the parties
must meet for direct negotiations, and if no agreement is reached, either party
may request the National Mediation Board (NMB) to appoint a federal mediator. If
no agreement is reached in mediation, the NMB may declare at some time that an
impasse exists, and if an impasse is declared, the NMB proffers binding
arbitration to the parties. Either party may decline to submit to arbitration.
If arbitration is rejected, a 30-day "cooling off" period commences. During that
period, a Presidential Emergency Board (PEB) may be established, which examines
the parties' positions and recommends a solution. The PEB process lasts for 30
days and is followed by a "cooling off" period of 30 days. At the end of a
"cooling off" period, the labor organization may strike and the airline may
resort to "self-help", including the imposition of any or all of its proposed
amendments and the hiring of workers to replace strikers.
American's contract with the Association of Professional Flight
Attendants (APFA) became amendable on November 1, 1998. The parties reached a
tentative agreement in mid-1999 which the APFA membership did not ratify.
Negotiations between American and the APFA continue with the assistance of a
mediator appointed by the NMB. Those mediated negotiations will continue in
April 2001. At the request of the NMB, the parties have agreed to a blackout of
communications concerning the substance of the talks for the time being.
American's agreement with the Transport Workers Union (TWU) became
amendable on March 1, 2001. American and the TWU have been negotiating changes
to the agreement for several months. In response to the formal opening of
negotiations between the parties on February 27, 2001, certain members of the
TWU engaged in an illegal work action at New York's John F. Kennedy airport and,
to a lesser extent, New York LaGuardia. This illegal work action adversely
impacted American's operations. On March 1, 2001, American obtained a temporary
restraining order against the illegal work action, and subsequently operations
at those airports returned to normal. On March 13, 2001, the U.S. District
Court, Southern District of New York, refused to issue a preliminary injunction
against the TWU, but cautioned the parties that adherence to the law to avoid
unlawful service interruptions was required.
In 1997, American reached an agreement with the members of the Allied
Pilots Association (APA). The agreement becomes amendable August 31, 2001.
7
<PAGE> 9
The Air Line Pilots Association (ALPA), which represents AMR Eagle
pilots, reached agreement with AMR Eagle effective September 1, 1997, to have
all of the pilots of the Eagle carriers covered by a single collective
bargaining agreement. This agreement lasts until October 31, 2013. The parties
have the right to seek limited changes in 2000, 2004, 2008 and 2012. If the
parties are unable to agree on the limited changes, they also agreed that the
issues would be resolved by interest arbitration, without the exercise of
self-help (such as a strike). ALPA and AMR Eagle negotiated a tentative
agreement in 2000, but that agreement failed in ratification. Thereafter, the
parties participated in interest arbitration. They are awaiting the decisions of
the arbitrators.
The Association of Flight Attendants (AFA), which represents the flight
attendants of the Eagle carriers, reached agreement with AMR Eagle effective
March 2, 1998, to have all flight attendants of the AMR Eagle carriers covered
by a single contract. The agreement becomes amendable on September 2, 2002.
However, the parties have agreed to commence negotiations over amendments to the
agreement in March, 2001. The other union employees at the AMR Eagle carriers
are covered by separate agreements with the TWU which were effective April 28,
1998, and are amendable April 28, 2003.
With respect to the series of transactions described on pages 1 and 2
involving TWA, United/US Airways and DC Air, certain aspects of those
transactions are dependent upon the resolution of matters with the unions
representing the affected employees. The transaction with TWA requires, among
other things, that TWA's unions agree to waive certain provisions of their
current collective bargaining agreements as a condition to American's purchase
of the TWA assets. The DC Air transaction contemplates that American's flight
attendants and pilots would crew the aircraft involved in the wet lease
arrangement. The APA filed a grievance on March 13, 2001 seeking to arbitrate
whether the DC Air transaction would violate certain provisions of the
collective bargaining agreement between American and the APA. Finally, the union
representing American's pilots will need to resolve seniority integration issues
concerning US Airways pilots in conjunction with the aircraft asset transfer
from United/US Airways to American.
FUEL
The Company's operations are significantly affected by the availability and
price of jet fuel. The Company's fuel costs and consumption for the years 1998
through 2000 were:
<TABLE>
<CAPTION>
Average
Cost Per
Gallon, Percent of
Gallons Average Cost Excluding AMR's
Consumed Total Cost Per Gallon Fuel Taxes Operating
Year (in millions) (in millions) (in cents) (in cents) Expenses
- ---- ------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998 2,922 $1,604 54.9 50.2 10.3
1999 3,084 1,696 55.0 50.4 10.2
2000 3,197 2,495 78.1 72.8 13.6
</TABLE>
The impact of fuel price changes on the Company and its competitors is
dependent upon various factors, including hedging strategies. The Company has a
fuel hedging program in which it enters into fuel swap and option contracts to
protect against increases in jet fuel prices, which has had the effect of
dampening the Company's average cost per gallon. During 2000, the Company's fuel
hedging program reduced the Company's fuel expense by approximately $545
million. To reduce the impact of potential continuing fuel price increases in
2001, the Company has hedged approximately 40 percent of its 2001 fuel
requirements as of December 31, 2000. Based on projected fuel usage, the Company
estimates that a 10 percent increase in the price per gallon of fuel would
result in an increase to aircraft fuel expense of approximately $194 million in
2001, net of fuel hedge instruments outstanding at December 31, 2000. The above
analysis excludes any impact of the proposed transactions discussed on pages 1
and 2. Due to the competitive nature of the airline industry, in the event of
continuing increases in the price of jet fuel, there can be no assurance that
the Company will be able to pass on increased fuel prices to its customers by
increasing its fares. Likewise, any potential benefit of lower fuel prices may
be offset by increased fare competition and lower revenues for all air carriers.
8
<PAGE> 10
While the Company does not anticipate a significant reduction in fuel
availability, dependency on foreign imports of crude oil and the possibility of
changes in government policy on jet fuel production, transportation and
marketing make it impossible to predict the future availability of jet fuel. If
there were major reductions in the availability of jet fuel, the Company's
business would be adversely affected.
Additional information regarding the Company's fuel program is included
in the Outlook for 2001, Item 7(A) - Quantitative and Qualitative Disclosures
about Market Risk, and in Note 6 to the consolidated financial statements.
FREQUENT FLYER PROGRAM
American established the AAdvantage frequent flyer program (AAdvantage) to
develop passenger loyalty by offering awards to travelers for their continued
patronage. AAdvantage members earn mileage credits for flights on American,
American Eagle and certain other participating airlines, or by utilizing
services of other program participants, including hotels, car rental companies
and bank credit card issuers. American sells mileage credits and related
services to the other companies participating in the program. American reserves
the right to change the AAdvantage program rules, regulations, travel awards and
special offers at any time without notice. American may initiate changes
impacting, for example, participant affiliations, rules for earning mileage
credit, mileage levels and awards, blackout dates and limited seating for travel
awards, and the features of special offers. American reserves the right to end
the AAdvantage program with six months' notice.
Mileage credits can be redeemed for free, discounted or upgraded travel
on American, American Eagle or participating airlines, or for other travel
industry awards. Once a member accrues sufficient mileage for an award, the
member may request an award certificate from American. Award certificates may be
redeemed up to one year after issuance. Most travel awards are subject to
blackout dates and capacity controlled seating. In 1999, certain changes were
made to the AAdvantage program so that miles do not expire, provided a customer
has any type of qualifying activity at least once every 36 months.
American accounts for its frequent flyer obligation on an accrual basis
using the incremental cost method. American's frequent flyer liability is
accrued each time a member accumulates sufficient mileage in his or her account
to claim the lowest level of free travel award (25,000 miles) and such award is
expected to be used for free travel. American includes fuel, food, and
reservations/ticketing costs, but not a contribution to overhead or profit, in
the calculation of incremental cost. The cost for fuel is estimated based on
total fuel consumption tracked by various categories of markets, with an amount
allocated to each passenger. Food costs are tracked by market category, with an
amount allocated to each passenger. Reservation/ticketing costs are based on the
total number of passengers, including those traveling on free awards, divided
into American's total expense for these costs. American defers the portion of
revenues received from companies participating in the AAdvantage program related
to the sale of mileage credits and recognizes such revenues over a period
approximating the period during which the mileage credits are used. The
remaining portion of the revenue is recognized upon receipt as the related
services have been provided.
At December 31, 2000 and 1999, American estimated that approximately
6.5 million and 5.4 million free travel awards, respectively, were expected to
be redeemed for free travel on American. In making the estimate of free travel
awards, American has excluded mileage in inactive accounts, mileage related to
accounts that have not yet reached the lowest level of free travel award, and
mileage in active accounts that have reached the lowest level of free travel
award but which are not expected to ever be redeemed for free travel on
American. The liability for the program mileage that has reached the lowest
level of free travel award and is expected to be redeemed for free travel on
American or other participating airlines and deferred revenues for mileage
credits sold to others participating in the program was $976 million and $827
million, representing 14.0 percent and 14.1 percent of AMR's total current
liabilities, at December 31, 2000 and 1999, respectively.
The estimated number of free travel awards used for travel on American
was 2.8 million in 2000, 2.7 million in 1999 and 2.3 million in 1998,
representing 9.2 percent of total revenue passenger miles in 2000, 9.3 percent
in 1999 and 8.8 percent in 1998. American believes displacement of revenue
passengers is minimal given American's load factors, its ability to manage
frequent flyer seat inventory, and the relatively low ratio of free award usage
to revenue passenger miles.
9
<PAGE> 11
OTHER MATTERS
SEASONALITY AND OTHER FACTORS The Company's results of operations for any
interim period are not necessarily indicative of those for the entire year,
since the air transportation business is subject to seasonal fluctuations.
Higher demand for air travel has traditionally resulted in more favorable
operating results for the second and third quarters of the year than for the
first and fourth quarters.
The results of operations in the air transportation business have also
significantly fluctuated in the past in response to general economic conditions.
In addition, fare initiatives, fluctuations in fuel prices, labor actions and
other factors could impact this seasonal pattern. Unaudited quarterly financial
data for the two-year period ended December 31, 2000 is included in Note 14 to
the consolidated financial statements.
No material part of the business of AMR and its subsidiaries is dependent
upon a single customer or very few customers. Consequently, the loss of the
Company's largest few customers would not have a materially adverse effect upon
AMR.
INSURANCE The Company carries insurance for public liability, passenger
liability, property damage and all-risk coverage for damage to its aircraft, in
amounts which, in the opinion of management, are adequate.
OTHER GOVERNMENT MATTERS In time of war or during an unlimited national
emergency or civil defense emergency, American and other major air carriers may
be required to provide airlift services to the Military Airlift Command under
the Civil Reserve Air Fleet program.
10
<PAGE> 12
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
Owned and leased aircraft operated by American and AMR Eagle at December 31,
2000, included:
<TABLE>
<CAPTION>
Weighted
Average
Current Seating Capital Operating Age
Equipment Type Capacity(1) Owned Leased Leased Total (Years)
- ----------------------------- ---------------- ----- ------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN AIRCRAFT
Airbus A300-600R 192/250/251 10 -- 25 35 11
Boeing 727-200 138 55 5 -- 60 24
Boeing 737-800(2) 134 51 -- -- 51 1
Boeing 757-200 176 58 13 31 102 8
Boeing 767-200 165 8 -- -- 8 18
Boeing 767-200 Extended Range 158 9 13 -- 22 14
Boeing 767-300 Extended Range 190/207/228 32 7 10 49 8
Boeing 777-200 Extended Range 230/237/252/254 27 -- -- 27 1
Fokker 100 56/87 66 5 4 75 8
McDonnell Douglas MD-11 238 7 -- -- 7 8
McDonnell Douglas MD-80 112/125/127/129 128 22 126 276 13
McDonnell Douglas MD-90 135 - -- 5 5 4
----- ----- ----- ----- -----
Total 451 65 201 717 11
===== ===== ===== ===== =====
AMR EAGLE AIRCRAFT
ATR 42 46 20 -- 11 31 10
Embraer 135 37 33 -- -- 33 1
Embraer 145 50 50 -- -- 50 2
Super ATR 64/66 40 -- 3 43 6
Saab 340 34 22 57 -- 79 9
Saab 340B Plus 34 - -- 25 25 5
----- ----- ----- ----- -----
Total 165 57 39 261 6
===== ===== ===== ===== =====
</TABLE>
(1) American's current seating capacity includes the effect of aircraft
reconfigured under the Company's More Room Throughout Coach program.
(2) The Boeing 727-200 fleet will be removed from service by the end of 2003.
For information concerning the estimated useful lives and residual values
for owned aircraft, lease terms for leased aircraft and amortization relating to
aircraft under capital leases, see Notes 1 and 4 to the consolidated financial
statements.
The Company has agreed to sell its McDonnell Douglas MD-11 aircraft to
FedEx Corporation (FedEx). The remaining seven MD-11 aircraft will be removed
from service by December 31, 2001 and delivered to FedEx in 2001 and 2002.
11
<PAGE> 13
Lease expirations for the leased aircraft included in the preceding table
as of December 31, 2000, were:
<TABLE>
<CAPTION>
2006
and
Equipment Type 2001 2002 2003 2004 2005 Thereafter
- -------------- ---- ---- ---- ---- ---- ----------
AMERICAN AIRCRAFT
<S> <C> <C> <C> <C> <C> <C>
Airbus A300-600R -- -- -- -- -- 25
Boeing 727-200 -- 2 3 -- -- --
Boeing 757-200 2 2 -- 3 -- 37
Boeing 767-200 Extended Range -- -- -- -- -- 13
Boeing 767-300 Extended Range -- 1 -- -- 4 12
Fokker 100 2 3 -- -- -- 4
McDonnell Douglas MD-80 11 13 5 2 14 103
McDonnell Douglas MD-90 5 -- -- -- -- --
---- ---- ---- ---- ---- ----
20 21 8 5 18 194
==== ==== ==== ==== ==== ====
AMR EAGLE AIRCRAFT
ATR 42 8 -- 3 -- -- --
Super ATR 3 -- -- -- -- --
Saab 340 -- -- -- -- 21 36
Saab 340B Plus -- -- -- -- -- 25
---- ---- ---- ---- ---- ----
11 -- 3 -- 21 61
==== ==== ==== ==== ==== ====
</TABLE>
Substantially all of the Company's aircraft leases include an option to
purchase the aircraft or to extend the lease term, or both, with the purchase
price or renewal rental to be based essentially on the market value of the
aircraft at the end of the term of the lease or at a predetermined fixed amount.
GROUND PROPERTIES
American leases, or has built as leasehold improvements on leased property, most
of its airport and terminal facilities; certain corporate office, maintenance
and training facilities in Fort Worth, Texas; its principal overhaul and
maintenance base at Tulsa International Airport, Tulsa, Oklahoma; its regional
reservation offices; and local ticket and administration offices throughout the
system. American has entered into agreements with the Tulsa Municipal Airport
Trust; the Alliance Airport Authority, Fort Worth, Texas; and the Dallas/Fort
Worth, Chicago O'Hare, Raleigh/Durham, Nashville, San Juan, New York, and Los
Angeles airport authorities to provide funds for constructing, improving and
modifying facilities and acquiring equipment which are or will be leased to
American. American also utilizes public airports for its flight operations under
lease or use arrangements with the municipalities or governmental agencies
owning or controlling them and leases certain other ground equipment for use at
its facilities. During 1999, the Company began construction of an approximate
$1.3 billion terminal facility at New York's John F. Kennedy International
Airport, which the Company expects to fund primarily through future tax-exempt
financing.
For information concerning the estimated lives and residual values for
owned ground properties, lease terms and amortization relating to ground
properties under capital leases, and acquisitions of ground properties, see
Notes 1, 3 and 4 to the consolidated financial statements.
12
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
In connection with its frequent flyer program, American was sued in several
purported class action cases currently pending in the Circuit Court of Cook
County, Illinois. In Wolens et al. v. American Airlines, Inc. and Tucker v.
American Airlines, Inc. (hereafter, "Wolens"), plaintiffs seek money damages and
attorneys' fees claiming that a change made to American's AAdvantage program in
May 1988, which limited the number of seats available to participants traveling
on certain awards, breached American's agreement with its AAdvantage members.
(Although the Wolens complaint originally asserted several state law claims,
only the plaintiffs' breach of contract claim remains after the U.S. Supreme
Court ruled that the Airline Deregulation Act preempted the other claims). In
Gutterman et al. v. American Airlines, Inc. (hereafter, "Gutterman"), plaintiffs
also seek money damages and attorneys' fees claiming that the February 1995
increase in the award mileage required to claim a certain AAdvantage travel
award breached the agreement between American and its AAdvantage members. On
June 23, 1998, the court certified the Gutterman case as a class action.
In February 2000, American and the Wolens and Gutterman plaintiffs
reached a settlement of both lawsuits. Pursuant to the agreement, American and
the plaintiffs agreed to ask the court to consolidate the Wolens and Gutterman
lawsuits for purposes of settlement. Further, American and the Wolens plaintiffs
agreed to ask the court to certify a Wolens class of AAdvantage members who had
at least 35,000 unredeemed AAdvantage miles as of December 31, 1988. In
addition, American and the Gutterman plaintiffs agreed to ask the court to
decertify the existing Gutterman class and to certify a new Gutterman class of
AAdvantage members who as of December 31, 1993 (a) had redeemed 25,000 or 50,000
AAdvantage miles for certain AAdvantage awards and/or (b) had between 4,700 and
24,999 unredeemed miles in his or her account that were earned in 1992 or 1993.
Depending upon certain factors, Wolens and Gutterman class members will be
entitled to receive certificates entitling them to mileage off certain
AAdvantage awards or dollars off certain American fares.
As part of the settlement, American agreed to pay the Wolens and
Gutterman plaintiffs' attorneys fees and the cost of administering the
settlement, which amounts were accrued as of December 31, 1999. In consideration
for the relief provided in the settlement agreement, Wolens and Gutterman class
members will release American from all claims arising from any changes that
American has made to the AAdvantage program and reaffirming American's right to
make changes to the AAdvantage program in the future. On May 2, 2000, the court
preliminarily approved the settlement and authorized sending notice of the
settlement to class members. On September 28, 2000 and February 23, 2001, the
court heard arguments and took evidence concerning the fairness of the
settlement and the request for fees by the plaintiffs' attorneys. The court has
not yet finally approved the settlement agreement or the plaintiffs' fee
request.
On July 26, 1999, a class action lawsuit was filed, and in November 1999
an amended complaint was filed, against AMR Corporation, American Airlines,
Inc., AMR Eagle Holding Corporation, Airlines Reporting Corporation, and the
Sabre Group Holdings, Inc. in the United States District Court for the Central
District of California, Western Division (Westways World Travel, Inc. v. AMR
Corp., et al.). The lawsuit alleges that requiring travel agencies to pay debit
memos to American for violations of American's fare rules (by customers of the
agencies) (1) breaches the Agent Reporting Agreement between American and
American Eagle and plaintiffs, (2) constitutes unjust enrichment, and (3)
violates the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO).
The as yet uncertified class includes all travel agencies who have been or will
be required to pay monies to American for debit memos for fare rules violations
from July 26, 1995 to the present. Plaintiffs seek to enjoin American from
enforcing the pricing rules in question and to recover the amounts paid for
debit memos, plus treble damages, attorneys' fees, and costs. Defendants' motion
to dismiss all claims is pending. American intends to vigorously defend the
lawsuit. Although the Company believes that the litigation is without merit,
adverse court decisions could impose restrictions on American's ability to
respond to competitors, and American's business may be adversely impacted.
13
<PAGE> 15
On May 13, 1999, the United States (through the Antitrust Division of the
Department of Justice) sued AMR Corporation, American Airlines, Inc., and AMR
Eagle Holding Corporation in federal court in Wichita, Kansas. The lawsuit
alleges that American unlawfully monopolized or attempted to monopolize airline
passenger service to and from Dallas/Fort Worth International Airport (DFW) by
increasing service when new competitors began flying to DFW, and by matching
these new competitors' fares. The Department of Justice seeks to enjoin American
from engaging in the alleged improper conduct and to impose restraints on
American to remedy the alleged effects of its past conduct. The case has been
set for trial on May 22, 2001. American intends to defend the lawsuit
vigorously.
Between May 14, 1999 and June 7, 1999, seven class action lawsuits were
filed against AMR Corporation, American Airlines, Inc., and AMR Eagle Holding
Corporation in the United States District Court in Wichita, Kansas seeking
treble damages under federal and state antitrust laws, as well as injunctive
relief and attorneys' fees. (King v. AMR Corp., et al.; Smith v. AMR Corp., et
al.; Team Electric v. AMR Corp., et al.; Warren v. AMR Corp., et al.; Whittier
v. AMR Corp., et al.; Wright v. AMR Corp., et al.; and Youngdahl v. AMR Corp.,
et al.). Collectively, these lawsuits allege that American unlawfully
monopolized or attempted to monopolize airline passenger service to and from DFW
by increasing service when new competitors began flying to DFW, and by matching
these new competitors' fares. Two of the suits (Smith and Wright) also allege
that American unlawfully monopolized or attempted to monopolize airline
passenger service to and from DFW by offering discounted fares to corporate
purchasers, by offering a frequent flyer program, by imposing certain conditions
on the use and availability of certain fares, and by offering override
commissions to travel agents. The suits propose to certify several classes of
consumers, the broadest of which is all persons who purchased tickets for air
travel on American into or out of DFW since 1995 to the present. On November 10,
1999, the District Court stayed all of these actions pending developments in the
case brought by the Department of Justice. As a result, to date no class has
been certified. American intends to defend these lawsuits vigorously.
On March 1, 2000, American was served with a federal grand jury subpoena
calling for American to produce documents relating to de-icing operations at DFW
since 1992. American has produced documents to the grand jury, but is not able
at this time to determine either the full scope of the grand jury's
investigation or American's role in the investigation. American intends to
cooperate fully with the government's investigation.
14
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of its fiscal year ended December 31, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information relates to the executive officers of AMR as of
December 31, 2000.
Donald J. Carty Mr. Carty was elected Chairman, President and Chief
Executive Office of AMR and American in May 1998. He
has been President of American since March 1995.
Prior to that, he served as Executive Vice President
of AMR from October 1989 to March 1995. Except for
two years service as President and CEO of Canadian
Pacific Air between March 1985 and March 1987, he
has been with the Company in various finance and
planning positions since 1978. Age 54.
Robert W. Baker Mr. Baker was elected Vice Chairman of AMR and
American in January 2000. He served as Executive
Vice President - Operations of American from 1989 to
January 2000 and a Senior Vice President of American
from 1985 to September 1989. Prior to that, he
served in various management positions at American
since 1968. Age 56.
Gerard J. Arpey Mr. Arpey was elected Executive Vice President -
Operations of American in January 2000. He is also
an Executive Vice President of AMR. Mr. Arpey served
as Chief Financial Officer of AMR from 1995 through
2000 and Senior Vice President of American from 1992
to January 2000. Prior to that, he served in various
management positions at American since 1982. Age 42.
Daniel P. Garton Mr. Garton was elected Executive Vice President -
Customer Service of American in January 2000. He is
also an Executive Vice President of AMR. He served
as Senior Vice President - Customer Service of
American from 1998 to January 2000. Prior to that,
he served as President of AMR Eagle from 1995 to
1998. Except for two years service as Senior Vice
President and CFO of Continental Airlines between
1993 and 1995, he has been with the Company in
various management positions since 1984. Age 43.
Michael W. Gunn Mr. Gunn was elected Executive Vice President -
Marketing and Planning of American in January 2000.
He is also an Executive Vice President of AMR. He
served as Senior Vice President - Marketing from
1985 to January 2000. Prior to that, he has served
in various management positions at American since
1970. Age 55.
Thomas W. Horton Mr. Horton was elected Senior Vice President and
Chief Financial Officer of AMR and American in
January 2000. Prior to that, he served as a Vice
President of American from 1994 to January 2000 and
has served in various management positions of
American since 1985. Age 39.
Anne H. McNamara Ms. McNamara was elected Senior Vice President and
General Counsel in 1988. She served as Vice
President - Personnel Resources of American during
1988. She was elected Corporate Secretary of AMR in
1982 and of American in 1979 and held those
positions through 1987. Prior to that, she served as
an attorney since 1976. Age 53.
Charles D. MarLett Mr. MarLett was elected Corporate Secretary in
January 1988. He joined American as an attorney in
June 1984. Age 46.
15
<PAGE> 17
EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
There are no family relationships among the executive officers of the
Company named on the preceding page.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
16
<PAGE> 18
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange (symbol
AMR). The approximate number of record holders of the Company's common stock at
March 16, 2001 was 13,250.
The range of closing market prices for AMR's common stock on the New York
Stock Exchange was:
<TABLE>
<CAPTION>
2000 1999
----------------------- -----------------------
High Low High Low
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
QUARTER ENDED
March 31 $67 3/8 $30 $71 7/16 $53 3/16
June 30 37 7/8 26 7/16 74 5/16 60 9/16
September 30 34 11/16 26 1/8 72 3/4 52 13/16
December 31 39 3/16 27 15/16 68 1/2 53 9/16
</TABLE>
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 AMR's shareholders. As a result of the dividend, AMR's stock price was
adjusted from $60 9/16 to $25 9/16 by the New York Stock Exchange after the
market close on March 15, 2000 to exclude the value of Sabre. The pre-March 15,
2000 stock prices in the above table have not been adjusted to give effect to
this distribution.
No cash dividends on common stock were declared for any period during
2000 or 1999. Payment of dividends is subject to the restrictions described in
Note 5 to the consolidated financial statements.
17
<PAGE> 19
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(in millions, except per share amounts)
- ---------------------------------------------------------------------------------------------
2000 1999 1998(2) 1997(2) 1996(2)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total operating revenues $19,703 $17,730 $17,516 $16,957 $16,249
Operating income 1,381 1,156 1,988 1,595 1,477
Income from continuing operations
before extraordinary loss 779 656 1,114 809 901
Net earnings 813 985 1,314 985 1,016
Earnings per common share from
continuing operations before
extraordinary loss:(1)
Basic 5.20 4.30 6.60 4.54 5.23
Diluted 4.81 4.17 6.38 4.43 4.88
Net earnings per common share:(1)
Basic 5.43 6.46 7.78 5.52 5.90
Diluted 5.03 6.26 7.52 5.39 5.59
Total assets 26,213 24,374 21,455 20,287 20,004
Long-term debt, less current
maturities 4,151 4,078 2,436 2,248 2,737
Obligations under capital leases,
less current obligations 1,323 1,611 1,764 1,629 1,790
Obligation for postretirement
benefits 1,706 1,669 1,598 1,527 1,483
</TABLE>
(1) The earnings per share amounts reflect the stock split on June 9, 1998.
(2) Restated to reflect discontinued operations.
No dividends were declared on common shares during any of the periods
above.
Information on the comparability of results is included in Management's
Discussion and Analysis and the notes to the consolidated financial statements.
18
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMR's
principal subsidiary, American Airlines, Inc. (American), was founded in 1934.
AMR's operations fall almost entirely in the airline industry.
RESULTS OF OPERATIONS
AMR's net earnings in 2000 were $813 million, or $5.43 per common share ($5.03
diluted). AMR's income from continuing operations before extraordinary loss in
2000 was $779 million, or $5.20 per common share ($4.81 diluted). The results
for 2000 include the following special items: (i) a gain of $57 million ($36
million after tax) from the sale of the Company's warrants to purchase 5.5
million shares of priceline.com Incorporated (priceline) common stock, (ii) a
gain of approximately $41 million ($26 million after tax) from the recovery of
start-up expenses from the Canadian Airlines International Limited (Canadian)
services agreement, and (iii) a charge of $56 million ($35 million after tax)
for the Company's employee home computer program.
AMR's net earnings in 1999 were $985 million, or $6.46 per common share
($6.26 diluted). AMR's income from continuing operations in 1999 was $656
million, or $4.30 per common share ($4.17 diluted). A labor disagreement that
disrupted operations during the first quarter of 1999 negatively impacted the
Company's 1999 results by an estimated $225 million ($140 million after tax).
The results for 1999 also include the following: (i) American's December 1998
acquisition of Reno Air, Inc. (Reno) and AMR Eagle's March 1999 acquisition of
Business Express, Inc. (Business Express), (ii) a gain of $83 million ($64
million after tax) on the sale of AMR Services, AMR Combs and TeleService
Resources, which is included in discontinued operations, (iii) a gain of
approximately $213 million ($118 million after taxes and minority interest)
resulting from the sale of a portion of the Company's holding in Equant N.V.
(Equant), of which approximately $75 million ($47 million after tax) is included
in income from continuing operations, (iv) a gain of $40 million ($25 million
after tax) from the Company's sale of its investment in the cumulative
mandatorily redeemable convertible preferred stock of Canadian and a $67 million
tax benefit resulting from the tax loss on the Company's investment in Canadian,
and (v) a charge of approximately $37 million ($25 million after tax) relating
to the provision for certain litigation items.
REVENUES
2000 COMPARED TO 1999 The Company's revenues increased approximately $2.0
billion, or 11.1 percent, versus 1999. American's passenger revenues increased
by 11.4 percent, or $1.7 billion. American's yield (the average amount one
passenger pays to fly one mile) of 14.05 cents increased by 7.1 percent compared
to 1999. For the year, domestic yields increased 7.5 percent while European,
Latin American and Pacific yields increased 9.9 percent, 4.2 percent and 3.8
percent, respectively. The increase in revenues was due primarily to a strong
U.S. economy, which led to strong demand for air travel both domestically and
internationally, a favorable pricing climate, the impact of a domestic fuel
surcharge implemented in January 2000 and increased in September 2000, a labor
disruption at one of the Company's competitors which positively impacted the
Company's revenues by approximately $80 to $100 million, and a schedule
disruption which negatively impacted the Company's operations in 1999.
American's domestic traffic increased 2.7 percent to 78.5 billion revenue
passenger miles (RPMs), while domestic capacity, as measured by available seat
miles (ASMs), decreased 1.6 percent. The decrease in domestic capacity was due
primarily to the Company's More Room Throughout Coach program. (The Company's
More Room Throughout Coach program reconfigures American's entire fleet to
increase the seat pitch from the present industry standard of 31 and 32 inches
to a predominant seat pitch of 34 and 35 inches.) International traffic grew 6.8
percent to 38.1 billion RPMs on capacity growth of 3.1 percent. The increase in
international traffic was led by a 12.2 percent increase in the Pacific on
capacity growth of 2.5 percent, an 8.5 percent increase in Europe on capacity
growth of 6.7 percent, and a 4.1 percent increase in Latin America on capacity
growth of 0.4 percent. In 2000, American derived approximately 70 percent of its
passenger revenues from domestic operations and approximately 30 percent from
international operations.
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AMR Eagle's passenger revenues increased $158 million, or 12.2 percent.
AMR Eagle's 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.
1999 COMPARED TO 1998 The Company's revenues increased $214 million, or 1.2
percent, versus 1998. American's passenger revenues increased by 0.1 percent, or
$12 million. American's yield of 13.12 cents decreased by 2.7 percent compared
to 1998. For the year, domestic yields decreased 1.1 percent, while European,
Pacific and Latin American yields decreased 7.2 percent, 6.0 percent and 4.5
percent, respectively. The decrease in domestic yield was due primarily to
increased capacity, the labor disagreement during the first quarter of 1999, and
the impact of international yield decreases on domestic yields. The decrease in
international yields was due primarily to weak economies in certain parts of the
world, large industry capacity additions and increased fare sale activity.
American's domestic traffic increased 2.1 percent to 76.4 billion RPMs,
while domestic capacity increased 4.1 percent. The increase in domestic traffic
was due primarily to the addition of Reno. International traffic grew 4.6
percent to 35.7 billion RPMs on a capacity increase of 3.1 percent. The increase
in international traffic was led by a 44.2 percent increase in the Pacific on
capacity growth of 44.1 percent and a 5.7 percent increase in Europe on capacity
growth of 7.3 percent, partially offset by a 1.9 percent decrease in Latin
America on a capacity decrease of 5.1 percent. In 1999, American derived
approximately 70 percent of its passenger revenues from domestic operations and
approximately 30 percent from international operations.
AMR Eagle's passenger revenues increased $173 million, or 15.4 percent.
AMR Eagle's traffic increased to 3.4 billion RPMs, up 20.9 percent, while
capacity increased to 5.6 billion ASMs, or 26.1 percent, due primarily to the
addition of Business Express in March 1999.
OPERATING EXPENSES
2000 COMPARED TO 1999 The Company's operating expenses increased 10.5 percent,
or approximately $1.7 billion. American's cost per ASM increased by 10.5 percent
to 10.38 cents, partially driven by a reduction in ASMs due to the Company's
More Room Throughout Coach program. Adjusting for this program, American's cost
per ASM grew approximately 7.2 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 Company's labor contracts, an increase of approximately
$93 million in the provision for profit-sharing, and a charge of approximately
$56 million for the Company's employee home computer program. Aircraft fuel
expense increased $799 million, or 47.1 percent, due to an increase of 42.0
percent in the Company's average price per gallon and a 3.7 percent increase in
the Company's fuel consumption. The increase in fuel expense is net of gains of
approximately $545 million recognized during 2000 related to the Company's fuel
hedging program. Depreciation and amortization expense increased $110 million,
or 10.1 percent, due primarily to the addition 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 Company's 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.
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<PAGE> 22
1999 COMPARED TO 1998 The Company's operating expenses increased 6.7 percent, or
approximately $1 billion. American's cost per ASM increased by 1.5 percent to
9.39 cents. Wages, salaries and benefits increased $327 million, or 5.6 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 Company's
labor contracts, partially offset by a decrease in the provision for
profit-sharing. Aircraft fuel expense increased $92 million, or 5.7 percent, due
to a 5.5 percent increase in the Company's fuel consumption and a 0.2 percent
increase in the Company's average price per gallon. The increase in fuel expense
is net of gains of approximately $111 million recognized during 1999 related to
the Company's fuel hedging program. Depreciation and amortization expense
increased $52 million, or 5.0 percent, due primarily to the addition of new
aircraft, partially offset by the change in depreciable lives and residual
values for certain types of aircraft in 1999 (see Note 1 to the consolidated
financial statements). Maintenance, materials and repairs expense increased 7.3
percent, or $68 million, due primarily to the addition of Reno and Business
Express aircraft during 1999. Commissions to agents decreased 5.2 percent, or
$64 million, despite a 1.2 percent increase in passenger revenues, due to the
benefit from the changes in the international commission structure in late 1998
and the base commission structure in October 1999, and a decrease in the
percentage of commissionable transactions. Other rentals and landing fees
increased 12.3 percent, or $103 million, due primarily to higher facilities rent
and landing fees across American's system and the addition of Reno and Business
Express. Food service increased $65 million, or 9.6 percent, due primarily to
rate increases and the addition of Reno. Aircraft rentals increased $61 million,
up 10.7 percent, primarily due to the addition of Reno and Business Express
aircraft. Other operating expenses increased $342 million, or 12.0 percent, due
primarily to increases in outsourced services, travel and incidental costs and
booking fees.
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income and expense, interest
capitalized and miscellaneous - net.
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 28.0 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
Company's warrants to purchase 5.5 million shares of priceline common stock in
the second quarter of 2000 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 American's interest in Equant and a gain of approximately $40 million
related to the sale of the Company's 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.
1999 COMPARED TO 1998 Interest income decreased $38 million, or 28.6 percent,
due primarily to lower investment balances throughout most of 1999. Interest
expense increased $21 million, or 5.6 percent, resulting primarily from an
increase in long-term debt. Interest capitalized increased 13.5 percent, or $14
million, due to an increase in purchase deposits for flight equipment throughout
most of 1999. Miscellaneous - net increased $50 million due primarily to the
sale of a portion of American's interest in Equant in 1999, which resulted in an
approximate $75 million gain, and a gain of approximately $40 million from the
sale of the Company's 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.
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OPERATING STATISTICS
The following table provides statistical information for American and AMR Eagle
for the years ended December 31, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
AMERICAN AIRLINES
Revenue passenger miles (millions) 116,594 112,067 108,955
Available seat miles (millions) 161,030 161,211 155,297
Cargo ton miles (millions) 2,280 2,068 1,974
Passenger load factor 72.4% 69.5% 70.2%
Breakeven load factor 65.9% 63.8% 59.9%
Passenger revenue yield per passenger mile (cents) 14.05 13.12 13.49
Passenger revenue per available seat mile (cents) 10.17 9.12 9.46
Cargo revenue yield per ton mile (cents) 31.31 30.70 32.85
Operating expenses per available seat mile (cents) 10.38 9.39 9.25
Operating aircraft at year-end 717 697 648
AMR EAGLE
Revenue passenger miles (millions) 3,731 3,371 2,788
Available seat miles (millions) 6,256 5,640 4,471
Passenger load factor 59.6% 59.8% 62.4%
Operating aircraft at year-end 261 268 209
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided net cash of $3.1 billion in 2000, $2.3 billion in
1999 and $2.8 billion in 1998. The $878 million increase from 1999 to 2000
resulted primarily from a decrease in working capital.
Capital expenditures in 2000 totaled $3.7 billion, compared to $3.5
billion in 1999 and $2.3 billion in 1998, and included aircraft acquisitions of
approximately $3.1 billion. In 2000, American took delivery of 27 Boeing
737-800s and 16 Boeing 777-200ERs. AMR Eagle took delivery of 24 Embraer 135
aircraft and five Embraer 145 aircraft. These expenditures, as well as the
expansion of certain airport facilities, were funded primarily with internally
generated cash and the $559 million cash dividend from Sabre Holdings
Corporation, except for (i) 11 Boeing aircraft which were financed through
secured mortgage agreements, and (ii) the Embraer aircraft acquisitions which
were funded through secured debt agreements.
At December 31, 2000, the Company had commitments to acquire the
following aircraft: 66 Boeing 737-800s, 23 Boeing 757-200s, 20 Boeing
777-200ERs, 146 Embraer regional jets and 25 Bombardier CRJ-700s. Deliveries of
all aircraft extend through 2006. Future payments for all aircraft, including
the estimated amounts for price escalation, will approximate $2.7 billion in
2001, $1.6 billion in 2002, $900 million in 2003 and an aggregate of
approximately $1.3 billion in 2004 through 2006. In addition to these
commitments for aircraft, the Company expects to spend approximately $1.0
billion in 2001 for modifications to aircraft, renovations of - and additions to
- - airport and off-airport facilities, and the acquisition of various other
equipment and assets, of which approximately $855 million has been authorized by
the Company's Board of Directors. The Company expects to fund its 2001 capital
expenditures from the Company's existing cash and short-term investments,
internally generated cash or new financing depending upon market conditions
and the Company's evolving view of its long-term needs.
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<PAGE> 24
On January 10, 2001, the Company announced three transactions that are
expected to substantially increase the scope of its existing network. First, the
Company announced that it had agreed to purchase substantially all of the assets
of Trans World Airlines, Inc. (TWA) for approximately $500 million in cash and
to assume approximately $3.5 billion of TWA's obligations. The Company's
agreement with TWA contemplated that TWA would file for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code and conduct an auction of its
assets under the auspices of the Bankruptcy Court. During the auction, other
credible offers would compete with the Company's offer. TWA filed for bankruptcy
protection on January 10, 2001. In conjunction therewith, the Company also
agreed to provide TWA with up to $200 million in debtor-in-possession financing
to facilitate TWA's ability to maintain its operations until the completion of
this transaction. The amount available under this facility was later increased
to $330 million. As of March 19, 2001, approximately $289 million had been
provided via the debtor-in-possession financing.
The auction of TWA's assets was commenced on March 5, 2001, and recessed
to March 7, 2001. During the recess, the Company increased its cash bid to $625
million and agreed to leave in the TWA estate certain aircraft security
deposits, advance rental payments and rental rebates that were estimated to
bring approximately $117 million of value to TWA. The Company expects that the
increase in the Company's bid will be more than offset, however, by the benefit
to the Company of the reductions in rental rates the Company has negotiated with
TWA's aircraft lessors. On March 7, 2001, TWA's board selected the
Company's bid as the "highest and best" offer, and on March 12, 2001, the U.S.
Bankruptcy Court, District of Delaware, entered an order approving the sale of
TWA's assets to the Company. Consummation of the transaction is subject to
several contingencies, including the waiver by TWA's unions of certain
provisions of their collective bargaining agreements. The approval of the U.S.
Department of Justice was obtained on March 16, 2001. Certain parties have
filed appeals of the Bankruptcy Court's sale order, and have sought a stay of
the transaction, pending the appeals. A provision of the Bankruptcy Code will
permit the Company to close the transaction, despite pending appeals, unless a
stay is granted. If a stay is granted, the Company would anticipate that the
appeal process would be expedited. Upon the closing of the transaction, TWA will
be integrated into American's operations with a continued hub operation in St.
Louis. The Company expects to fund the acquisition of TWA's assets with its
existing cash or short-term investments, internally generated cash or new
financing depending on market conditions and the Company's evolving view of its
long-term needs.
Secondly, the Company announced that it has agreed to acquire from United
Airlines, Inc. (United) certain key strategic assets (slots, gates and aircraft)
of US Airways, Inc. (US Airways) upon the consummation of the previously
announced merger between United and US Airways. In addition to the acquisition
of these assets, American will lease a number of slots and gates from United so
that American may operate half of the northeast Shuttle (New York/Washington
DC/Boston). United will operate the other half of the Shuttle. For these assets,
American will pay approximately $1.2 billion in cash to United and assume
approximately $300 million in aircraft operating leases. The consummation of
these transactions is contingent upon the closing of the proposed United/US
Airways merger. Also, the acquisition of aircraft is generally dependent upon a
certain number of US Airways' Boeing 757 cockpit crew members transferring to
American's payroll.
Finally, American has agreed to acquire a 49 percent stake in, and to
enter into an exclusive marketing agreement with, DC Air LLC (DC Air). American
has agreed to pay $82 million in cash for its ownership stake. American will
have a right of first refusal on the acquisition of the remaining 51 percent
stake in DC Air. American will also lease to DC Air a certain number of Fokker
100 aircraft with necessary crews (known in the industry as a "wet lease").
These wet leased aircraft will be used by DC Air in its operations. DC Air is
the first significant new entrant at Ronald Reagan Washington National Airport
(DCA) in over a decade. DC Air will acquire the assets needed to begin its DCA
operations from United/US Airways upon the consummation of the merger between
the two carriers. American's investment in DC Air and the other arrangements
described above are contingent upon the consummation of the merger between
United and US Airways.
American has $1.0 billion in credit facility agreements that expire
December 15, 2005, subject to certain conditions. At American's option, interest
on these agreements can be calculated on one of several different bases. For
most borrowings, American would anticipate choosing a floating rate based upon
the London Interbank Offered Rate (LIBOR). At December 31, 2000, no borrowings
were outstanding under these agreements.
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<PAGE> 25
AMR (principally American Airlines) 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 Company's ability to meet its
obligations as they become due and is not expected to do so in the future.
OTHER INFORMATION
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. AMR's 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 3 to the
consolidated financial statements.
NEW ACCOUNTING PRONOUNCEMENT Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended (SFAS 133), was adopted by the Company on
January 1, 2001. 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
derivative's change in fair value will be immediately recognized in earnings.
The adoption of SFAS 133 did not have a material impact on the Company's net
earnings. However, the Company recorded a transition adjustment of approximately
$100 million in accumulated other comprehensive income in the first quarter of
2001.
OUTLOOK FOR 2001
The Company is cautious in its outlook for 2001. On the revenue front, the
primary concern is a slowing U.S. economy. American's strong revenue performance
the past several years was marked by a growing U.S. economy coupled with a
modest increase in industry capacity. Our revenue performance in 2001 will be
dictated by how well the industry manages that relationship going forward.
Absent the TWA, United/US Airways and DC Air transactions, American's
capacity in 2001 is expected to grow about three percent, slightly less than the
industry average. AMR Eagle's capacity will grow about 11 percent, reflecting
the delivery of 31 new regional jets (RJs). Should the demand for air travel
slow more quickly than expected, both carriers have the flexibility to further
accelerate the retirement of certain older aircraft to keep the Company's
capacity growth in line with general economic conditions.
With the transactions, if approved, the Company expects to strengthen its
position in several key domestic markets. The TWA transaction will provide
American with a hub operation in St. Louis which will serve to strengthen the
Company's position as an east/west carrier. In addition, these proposed
transactions will allow the Company to gain additional slots and real estate at
New York's Kennedy and LaGuardia airports, Washington Reagan, Boston and other
major airports across the domestic system. At the same time, the Company will
continue to improve the regional airline feed to American by strengthening AMR
Eagle with the replacement of turboprop aircraft with RJs and the expansion of
connecting service at Chicago O'Hare, DFW and key East Coast cities. The Company
has reached agreements with three regional carriers feeding TWA in St. Louis.
These agreements will provide for continued feed traffic from St. Louis should
the TWA transaction be approved.
On the international front, the Company will continue to pursue its
relationship with Swissair/Sabena, and its bilateral agreement with EVA of
Taiwan -- coupled with the Company's existing Asian carrier alliances -- will
allow the Company to strengthen its presence in several Asian markets. The
Company is also working to make the ONEworld alliance pay off in more
significant ways, in part by strengthening its relationship with British
Airways.
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<PAGE> 26
Pressure to reduce costs will continue, although the volatility of fuel
prices makes any prediction of overall costs very difficult. Excluding fuel
expense and the impact of the Company's More Room Throughout Coach program, the
Company anticipates an increase in unit cost of one to two percent driven
primarily by higher labor and aircraft ownership costs. On the labor front, the
Company has or will have all three of its union contracts open for negotiation
in 2001. The expected result is upward pressure on labor rates. Aircraft
depreciation and maintenance, materials and repairs expense will also be up,
reflecting 2000 and 2001 aircraft deliveries. Other expense lines will see
volume-driven increases and inflationary pressures. Partially offsetting these
expected increases, the Company anticipates future reductions in distribution
costs due to reduced commission expense and increased penetration rates for
electronic tickets. And although oil prices are largely expected to decrease in
2001 as compared to 2000 levels, the resulting benefit will be offset by lower
fuel hedging gains in 2001 from the Company's fuel hedging program.
Lastly, as a result of the proposed TWA, United/US Airways and DC Air
transactions, and for several other reasons, American and American Eagle have
initiated an impairment review of certain fleet types 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."
This review could result in an impairment charge to be taken by the Company in
2001. The size of any resulting 2001 charge is not presently known, but may be
significant.
FORWARD-LOOKING INFORMATION
The preceding discussions under Business, Properties, Legal Proceedings and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain various forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which represent the Company's
expectations or beliefs concerning future events. When used in this document and
in documents incorporated herein by reference, the words "expects," "plans,"
"anticipates," and similar expressions are intended to identify forward-looking
statements. Forward-looking statements include, without limitation, expectations
as to results of operations and financial condition, including changes in
capacity, revenues and costs, expectations as to future financing needs, overall
economic projections and the Company's plans and objectives for future
operations, including its ability to successfully integrate into its operations
assets the Company may acquire in its previously announced transactions with
TWA, United/US Airways and DC Air, and plans to develop future code-sharing
programs and to evaluate new alliances. 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 Company's actual results to differ materially from those expressed in
forward-looking statements:
UNCERTAINTY OF FUTURE COLLECTIVE BARGAINING AGREEMENTS AND EVENTS The Company's
operations could be adversely affected by failure of the Company to reach
agreement with any labor union representing the Company's employees or by an
agreement with a labor union representing the Company's employees that contains
terms which prevent the Company from competing effectively with other airlines.
In addition, a dispute between the Company and an employee work group (outside
the confines of a collective bargaining agreement) could adversely impact the
Company's operations.
ECONOMIC AND OTHER CONDITIONS The airline industry is affected by changes in
international, national, regional and local economic conditions, inflation, war
or political instability (or the threat thereof), consumer preferences and
spending patterns, demographic trends, disruptions to the air traffic control
system, consumer perceptions of airline safety, costs of safety, security and
environmental measures, and the weather.
COMMODITY PRICES Due to the competitive nature of the airline industry, in the
event of any increase in the price of jet fuel, there can be no assurance that
the Company would be able to pass on increased fuel prices to its customers by
increasing fares.
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<PAGE> 27
COMPETITION IN THE AIRLINE INDUSTRY Service over almost all of the Company's
routes is highly competitive. The Company faces vigorous competition from major
domestic airlines, national, regional, all-cargo and charter carriers, foreign
carriers, low-cost carriers, and, particularly on shorter segments, ground
transportation. Pricing decisions are affected by competition from other
airlines. Fare discounting by competitors has historically had a negative effect
on the Company's financial results because American is generally required to
match competitors' fares to maintain passenger traffic. No assurance can be
given that any future fare reduction would be offset by increases in passenger
traffic, a reduction in costs or changes in the mix of traffic that would
improve yields.
CHANGING BUSINESS STRATEGY Although it has no current plan to do so, the Company
may change its business strategy in the future and may not pursue some of the
goals stated herein.
GOVERNMENT REGULATION Future results of the Company's operations may vary based
upon any actions which the governmental agencies with jurisdiction over the
Company's operations may take, including the granting and timing of certain
governmental approvals (including foreign government approvals) needed for
code-sharing alliances and other arrangements with other airlines, restrictions
on competitive practices (e.g., Court Orders, or Agency regulations or orders,
that would curtail an airline's ability to respond to a competitor), the
adoption of regulations that impact customer service standards, and the adoption
of more restrictive locally-imposed noise restrictions.
UNCERTAINTY IN INTERNATIONAL OPERATIONS The Company's current international
activities and prospects could be adversely affected by factors such as
reversals or delays in the opening of foreign markets, exchange controls,
currency and political risks, taxation and changes in international government
regulation of the Company's operations.
INDUSTRY CONSOLIDATION The Company has announced a series of transactions with
TWA, United/US Airways and DC Air (see page 23). These transactions are subject
to a number of conditions and there can be no assurance that they will occur as
planned. If these transactions do not occur and yet other U.S. carriers merge or
create or expand marketing alliances, such mergers or new or expanded marketing
alliances could adversely affect the Company.
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<PAGE> 28
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in the Company's 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 its exposure to such changes. Actual
results may differ. See Note 6 to the consolidated financial statements for
accounting policies and additional information. In addition, the following
analyses exclude any impact of the proposed transactions discussed on page 23.
AIRCRAFT FUEL The Company's 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 utilizing swap and option contracts. Market risk is
estimated as a hypothetical 10 percent increase in the December 31, 2000 and
1999 cost per gallon of fuel. Based on projected 2001 fuel usage, such an
increase would result in an increase to aircraft fuel expense of approximately
$194 million in 2001, net of fuel hedge instruments outstanding at December 31,
2000. Comparatively, based on projected 2000 fuel usage, such an increase would
have resulted in an increase to aircraft fuel expense of approximately $131
million in 2000, net of fuel hedge instruments outstanding at December 31, 1999.
The change in market risk is due primarily to the increase in fuel prices. As of
December 31, 2000, the Company had hedged approximately 40 percent of its 2001
fuel requirements, approximately 15 percent of its 2002 fuel requirements, and
approximately seven percent of its 2003 fuel requirements, compared to
approximately 48 percent of its 2000 fuel requirements and 10 percent of its
2001 fuel requirements hedged at December 31, 1999.
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 Company's largest exposure comes from the Canadian
dollar, British pound, Japanese yen, Euro and various Latin and South 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, 2000 and 1999
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 $33 million and $39 million for the years ending December 31, 2001
and 2000, respectively, net of hedge instruments outstanding at December 31,
2000 and 1999, due to the Company's foreign-denominated revenues exceeding its
foreign-denominated expenses. This sensitivity analysis was prepared based upon
projected 2001 and 2000 foreign currency-denominated revenues and expenses as of
December 31, 2000 and 1999.
INTEREST The Company's 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 29 percent and 21 percent of its total long-term debt,
respectively, at December 31, 2000 and 1999, and interest rate swaps on notional
amounts of approximately $158 million and $696 million, respectively, at
December 31, 2000 and 1999. During 2000, the Company terminated interest rate
swap agreements on notional amounts of approximately $425 million. The cost of
terminating these interest rate swap agreements was not material. If interest
rates average 10 percent more in 2001 than they did at December 31, 2000, the
Company's interest expense would increase by approximately $11 million and
interest income from cash and short-term investments would increase by
approximately $15 million. In comparison, at December 31, 1999, the Company
estimated that if interest rates averaged 10 percent more in 2000 than they did
at December 31, 1999, the Company's interest expense would have increased by
approximately $10 million and interest income from cash and short-term
investments would have increased by approximately $11 million. These amounts are
determined by considering the impact of the hypothetical interest rates on the
Company's variable-rate long-term debt, interest rate swap agreements, and cash
and short-term investment balances at December 31, 2000 and 1999.
27
<PAGE> 29
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 $148 million and $156 million as of
December 31, 2000 and 1999, respectively. The fair values of the Company's
long-term debt were estimated using quoted market prices or discounted future
cash flows based on the Company's incremental borrowing rates for similar types
of borrowing arrangements.
INVESTMENTS The Company is subject to market risk related to its ownership of
approximately 1.2 million depository certificates convertible, subject to
certain restrictions, into the common stock of Equant, as of December 31, 2000
and 1999. The estimated fair value of these depository certificates was
approximately $32 million and $136 million as of December 31, 2000 and 1999,
respectively, based upon the market value of Equant common stock.
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.
28
<PAGE> 30
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 30
Consolidated Statements of Operations 31
Consolidated Balance Sheets 33
Consolidated Statements of Cash Flows 35
Consolidated Statements of Stockholders' Equity 36
Notes to Consolidated Financial Statements 37
</TABLE>
29
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the accompanying consolidated balance sheets of AMR
Corporation as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AMR
Corporation at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 16, 2001, except for Note 15,
for which the date is March 19, 2001.
30
<PAGE> 32
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Passenger - American Airlines, Inc. $ 16,377 $ 14,707 $ 14,695
- AMR Eagle 1,452 1,294 1,121
Cargo 721 643 656
Other revenues 1,153 1,086 1,044
-------- -------- --------
Total operating revenues 19,703 17,730 17,516
-------- -------- --------
EXPENSES
Wages, salaries and benefits 6,783 6,120 5,793
Aircraft fuel 2,495 1,696 1,604
Depreciation and amortization 1,202 1,092 1,040
Maintenance, materials and repairs 1,095 1,003 935
Commissions to agents 1,037 1,162 1,226
Other rentals and landing fees 999 942 839
Food service 777 740 675
Aircraft rentals 607 630 569
Other operating expenses 3,327 3,189 2,847
-------- -------- --------
Total operating expenses 18,322 16,574 15,528
-------- -------- --------
OPERATING INCOME 1,381 1,156 1,988
OTHER INCOME (EXPENSE)
Interest income 154 95 133
Interest expense (467) (393) (372)
Interest capitalized 151 118 104
Miscellaneous - net 68 30 (20)
-------- -------- --------
(94) (150) (155)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND EXTRAORDINARY LOSS 1,287 1,006 1,833
Income tax provision 508 350 719
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY LOSS 779 656 1,114
INCOME FROM DISCONTINUED OPERATIONS, NET OF
APPLICABLE INCOME TAXES AND MINORITY INTEREST 43 265 200
GAIN ON SALE OF DISCONTINUED OPERATIONS, NET OF
APPLICABLE INCOME TAXES -- 64 --
-------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS 822 985 1,314
EXTRAORDINARY LOSS, NET OF APPLICABLE INCOME TAXES (9) -- --
-------- -------- --------
NET EARNINGS $ 813 $ 985 $ 1,314
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
Continued on next page.
31
<PAGE> 33
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(in millions, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
EARNINGS APPLICABLE TO COMMON SHARES $ 813 $ 985 $ 1,314
========= ========= =========
EARNINGS PER SHARE:
BASIC
Income from continuing operations $ 5.20 $ 4.30 $ 6.60
Discontinued operations 0.30 2.16 1.18
Extraordinary loss (0.07) -- --
--------- --------- ---------
Net earnings $ 5.43 $ 6.46 $ 7.78
========= ========= =========
DILUTED
Income from continuing operations $ 4.81 $ 4.17 $ 6.38
Discontinued operations 0.27 2.09 1.14
Extraordinary loss (0.05) -- --
--------- --------- ---------
Net earnings $ 5.03 $ 6.26 $ 7.52
========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 34
AMR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except shares and par value)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------
2000 1999
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 89 $ 85
Short-term investments 2,144 1,706
Receivables, less allowance for uncollectible
accounts (2000 - $27; 1999 - $57) 1,303 1,134
Inventories, less allowance for obsolescence
(2000 - $332; 1999 - $279) 757 708
Deferred income taxes 695 612
Other current assets 191 179
------- -------
Total current assets 5,179 4,424
EQUIPMENT AND PROPERTY
Flight equipment, at cost 20,041 16,912
Less accumulated depreciation 6,320 5,589
------- -------
13,721 11,323
Purchase deposits for flight equipment 1,700 1,582
Other equipment and property, at cost 3,639 3,247
Less accumulated depreciation 1,968 1,814
------- -------
1,671 1,433
------- -------
17,092 14,338
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment 2,618 3,141
Other equipment and property 159 155
------- -------
2,777 3,296
Less accumulated amortization 1,233 1,347
------- -------
1,544 1,949
OTHER ASSETS
Route acquisition costs and airport operating and
gate lease rights, less accumulated amortization
(2000 - $498; 1999 - $450) 1,143 1,191
Other 1,255 2,472
------- -------
2,398 3,663
------- -------
TOTAL ASSETS $26,213 $24,374
======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 35
AMR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except shares and par value)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,267 $ 1,115
Accrued salaries and wages 955 849
Accrued liabilities 1,276 1,107
Air traffic liability 2,696 2,258
Current maturities of long-term debt 569 302
Current obligations under capital leases 227 236
-------- --------
Total current liabilities 6,990 5,867
LONG-TERM DEBT, LESS CURRENT MATURITIES 4,151 4,078
OBLIGATIONS UNDER CAPITAL LEASES,
LESS CURRENT OBLIGATIONS 1,323 1,611
OTHER LIABILITIES AND CREDITS
Deferred income taxes 2,385 1,846
Deferred gains 508 613
Postretirement benefits 1,706 1,669
Other liabilities and deferred credits 1,974 1,832
-------- --------
6,573 5,960
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $1 par value; shares authorized: 750,000,000;
Shares issued: 2000 and 1999 - 182,278,766 182 182
Additional paid-in capital 2,911 3,061
Treasury shares at cost: 2000 - 30,216,218; 1999 - 34,034,110 (1,865) (2,101)
Accumulated other comprehensive income (2) (2)
Retained earnings 5,950 5,718
-------- --------
7,176 6,858
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,213 $ 24,374
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 36
AMR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations after extraordinary loss $ 770 $ 656 $ 1,114
Adjustments to reconcile income from continuing operations after
extraordinary loss to net cash provided by operating activities:
Depreciation 928 864 830
Amortization 274 228 210
Deferred income taxes 461 183 268
Extraordinary loss on early extinguishment of debt 14 -- --
Gain on sale of other investments, net (57) (95) --
Gain on disposition of equipment and property -- (15) (19)
Change in assets and liabilities:
Decrease (increase) in receivables (169) 261 (185)
Increase in inventories (111) (140) (36)
Increase in accounts payable and accrued liabilities 579 42 343
Increase in air traffic liability 438 84 128
Other, net 15 196 144
------- ------- -------
Net cash provided by operating activities 3,142 2,264 2,797
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, including purchase deposits
on flight equipment (3,678) (3,539) (2,342)
Net decrease (increase) in short-term investments (438) (253) 348
Acquisitions and other investments (50) (99) (137)
Proceeds from:
Dividend from Sabre Holdings Corporation 559 -- --
Sale of equipment and property 238 79 262
Sale of other investments 94 85 --
Sale of discontinued operations -- 259 --
Other -- 18 --
------- ------- -------
Net cash used for investing activities (3,275) (3,450) (1,869)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (766) (280) (547)
Proceeds from:
Issuance of long-term debt 836 1,956 246
Exercise of stock options 67 25 85
Short-term loan from Sabre Holdings Corporation -- 300 --
Sale-leaseback transactions -- 54 270
Repurchase of common stock -- (871) (945)
------- ------- -------
Net cash provided by (used for) financing activities 137 1,184 (891)
------- ------- -------
Net increase (decrease) in cash 4 (2) 37
Cash at beginning of year 85 87 50
------- ------- -------
Cash at end of year $ 89 $ 85 $ 87
======= ======= =======
ACTIVITIES NOT AFFECTING CASH
Distribution of Sabre Holdings Corporation shares to AMR
shareholders $ 581 $ -- $ --
======= ======= =======
Payment of short-term loan from Sabre Holdings Corporation $ -- $ 300 $ --
======= ======= =======
Capital lease obligations incurred $ -- $ 54 $ 270
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 37
AMR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Treasury Comprehensive Retained
Stock Capital Stock Income Earnings Total
------- ---------- -------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ 182 $ 3,104 $ (485) $ (4) $ 3,419 $ 6,216
Net earnings and total comprehensive
income -- -- -- -- 1,314 1,314
Repurchase of 14,342,008 common shares -- -- (944) -- -- (944)
Issuance of 2,495,148 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit of $17 -- (29) 141 -- -- 112
------- ------- ------- ------- ------- -------
Balance at December 31, 1998 182 3,075 (1,288) (4) 4,733 6,698
Net earnings -- -- -- -- 985 985
Adjustment for minimum pension
liability, net of tax expense of $1 -- -- -- 3 -- 3
Unrealized loss on investments, net of
tax benefit of $1 -- -- -- (1) -- (1)
-------
Total comprehensive income 987
Repurchase of 14,062,358 common shares -- -- (871) -- -- (871)
Issuance of 955,940 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit of $4 -- (14) 58 -- -- 44
------- ------- ------- ------- ------- -------
Balance at December 31, 1999 182 3,061 (2,101) (2) 5,718 6,858
Net earnings -- -- -- -- 813 813
Adjustment for minimum pension
liability, net of tax expense of $3 -- -- -- (5) -- (5)
Unrealized gain on investments, net of
tax expense of $2 -- -- -- 5 -- 5
-------
Total comprehensive income 813
Distribution of Sabre Holdings
Corporation shares to AMR shareholders -- -- -- -- (581) (581)
Issuance of 3,817,892 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit of $11 -- (150) 236 -- -- 86
------- ------- ------- ------- ------- -------
Balance at December 31, 2000 $ 182 $ 2,911 $(1,865) $ (2) $ 5,950 $ 7,176
======= ======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements include the accounts
of AMR Corporation (AMR or the Company) and its wholly owned subsidiaries,
including its principal subsidiary American Airlines, Inc. (American). All
significant intercompany transactions have been eliminated. The results of
operations, cash flows and net assets for Sabre Holdings Corporation (Sabre),
AMR Services, AMR Combs and TeleService Resources have been reflected in the
consolidated financial statements as discontinued operations. Unless
specifically indicated otherwise, the information in the footnotes relates to
the continuing operations of AMR. All share and per share amounts reflect the
stock split on June 9, 1998, where appropriate. Certain amounts from prior years
have been reclassified to conform with the 2000 presentation.
USE OF ESTIMATES The preparation of 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. Actual results could differ from those
estimates.
INVENTORIES Spare parts, materials and supplies relating to flight equipment are
carried at average acquisition cost and are expensed when incurred in
operations. Allowances for obsolescence are provided, over the estimated useful
life of the related aircraft and engines, for spare parts expected to be on hand
at the date aircraft are retired from service, plus allowances for spare parts
currently identified as excess. These allowances are based on management
estimates, which are subject to change.
EQUIPMENT AND PROPERTY The provision for depreciation of operating equipment and
property is computed on the straight-line method applied to each unit of
property, except that major rotable parts, avionics and assemblies are
depreciated on a group basis. The depreciable lives used for the principal
depreciable asset classifications are:
<TABLE>
<CAPTION>
Depreciable Life
----------------
<S> <C>
Boeing 727-200 aircraft 2003(1)
Other American jet aircraft 20 - 30 years
Regional aircraft and engines 16 - 20 years
Major rotable parts, avionics and assemblies Life of equipment to which
applicable
Improvements to leased flight equipment Term of lease
Buildings and improvements (principally on 10-30 years or term of lease
leased land)
Furniture, fixtures and other equipment 3-20 years
Capitalized software 3-10 years
</TABLE>
(1) Approximate final aircraft retirement date.
Residual values for aircraft, engines, major rotable parts, avionics and
assemblies are generally five to 10 percent, except when a guaranteed residual
value or other agreements exist to better estimate the residual value.
Effective January 1, 1999, in order to more accurately reflect the
expected useful life of its aircraft, the Company changed its estimate of the
depreciable lives of certain aircraft types from 20 to 25 years and increased
the residual value from five to 10 percent. It also established a 30-year life
for its new Boeing 777 aircraft, first delivered in the first quarter of 1999.
As a result of this change, depreciation and amortization expense was reduced by
approximately $158 million and net earnings were increased by approximately $99
million, or $0.63 per common share diluted, for the year ended December 31,
1999.
37
<PAGE> 39
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Equipment and property under capital leases are amortized over the term
of the leases or, in the case of certain aircraft, over their expected useful
lives, and such amortization is included in depreciation and amortization. Lease
terms vary but are generally 10 to 25 years for aircraft and seven to 40 years
for other leased equipment and property.
MAINTENANCE AND REPAIR COSTS Maintenance and repair costs for owned and leased
flight equipment are charged to operating expense as incurred, except engine
overhaul costs incurred by AMR Eagle Holding Corporation (AMR Eagle) and costs
incurred for maintenance and repair under power by the hour maintenance contract
agreements, which are accrued on the basis of hours flown.
INTANGIBLE ASSETS Route acquisition costs and airport operating and gate lease
rights represent the purchase price attributable to route authorities, airport
take-off and landing slots and airport gate leasehold rights acquired. These
assets are being amortized on a straight-line basis over 40 years for route
authorities, primarily 25 years for airport take-off and landing slots, and the
term of the lease for airport gate leasehold rights.
PASSENGER REVENUES 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. Actual
results could differ from those estimates.
ADVERTISING COSTS The Company expenses the costs of advertising as incurred.
Advertising expense was $221 million, $206 million and $196 million for the
years ended December 31, 2000, 1999 and 1998, respectively.
FREQUENT FLYER PROGRAM The estimated incremental cost of providing free travel
awards is accrued when such award levels are reached. American sells mileage
credits and related services to companies participating in its frequent flyer
program. The portion of the revenue related to the sale of mileage credits is
deferred and recognized over a period approximating the period during which the
mileage credits are used. The remaining portion of the revenue is recognized
upon receipt as the related services have been provided.
STATEMENTS OF CASH FLOWS Short-term investments, without regard to remaining
maturity at acquisition, are not considered as cash equivalents for purposes of
the statements of cash flows.
STOCK OPTIONS The Company accounts for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations. Under APB 25,
no compensation expense is recognized for stock option grants if the exercise
price of the Company's stock option grants is at or above the fair market value
of the underlying stock on the date of grant.
38
<PAGE> 40
2. INVESTMENTS
Short-term investments consisted of (in millions):
<TABLE>
<CAPTION>
December 31,
-----------------
2000 1999
------ ------
<S> <C> <C>
Overnight investments and time deposits $ 361 $ --
Corporate and bank notes 906 1,173
U. S. Government agency mortgages 442 94
Asset backed securities 361 145
U. S. Government agency notes -- 234
Other 74 60
------ ------
$2,144 $1,706
====== ======
</TABLE>
Short-term investments at December 31, 2000, by contractual maturity
included (in millions):
<TABLE>
<S> <C>
Due in one year or less $ 994
Due between one year and three years 1,104
Due after three years 46
------
$2,144
======
</TABLE>
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.
During 1999, the Company entered into an agreement with priceline.com
Incorporated (priceline) whereby ticket inventory provided by the Company may be
sold through priceline's e-commerce system. In conjunction with this agreement,
the Company received warrants to purchase approximately 5.5 million shares of
priceline common stock. In the second quarter of 2000, the Company sold these
warrants for proceeds of approximately $94 million, and recorded a gain of $57
million, which is included in Miscellaneous - net on the accompanying
consolidated statements of operations.
At December 31, 1998, the Company owned approximately 3.1 million
depository certificates convertible, subject to certain restrictions, into the
common stock of Equant N.V. (Equant), which completed an initial public offering
in July 1998. Approximately 1.7 million of the certificates were held by the
Company on behalf of Sabre. During 1999, the Company acquired approximately
400,000 Equant depository certificates from other airlines. In addition, based
upon a reallocation between the owners of the certificates in July 1999, the
Company received an additional 2.6 million certificates, of which approximately
2.2 million certificates were held for the benefit of Sabre. In connection with
two secondary offerings by Equant in February and December 1999, the Company
sold approximately 2.7 million depository certificates 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.
As of December 31, 2000 and 1999, the Company holds approximately 1.2
million depository certificates with an estimated market value of approximately
$32 million and $136 million, respectively. The carrying value of the Company's
investment in the depository certificates as of December 31, 2000 and 1999, was
approximately $20 million, and is included in other assets on the accompanying
consolidated balance sheets.
39
<PAGE> 41
2. INVESTMENTS (CONTINUED)
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.
3. COMMITMENTS AND CONTINGENCIES
At December 31, 2000, the Company had commitments to acquire the
following aircraft: 66 Boeing 737-800s, 23 Boeing 757-200s, 20 Boeing
777-200ERs, 146 Embraer regional jets and 25 Bombardier CRJ-700s. Deliveries of
all aircraft extend through 2006. Future payments for all aircraft, including
the estimated amounts for price escalation, will approximate $2.7 billion in
2001, $1.6 billion in 2002, $900 million in 2003 and an aggregate of
approximately $1.3 billion in 2004 through 2006. In addition to these
commitments for aircraft, the Company's Board of Directors has authorized
expenditures of approximately $2.8 billion over the next five years for
modifications to aircraft, renovations of - and additions to - airport and
off-airport facilities, and the acquisition of various other equipment and
assets. AMR expects to spend approximately $855 million of this authorized
amount in 2001.
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues and
other cost recovery methods. Future costs of the remediation effort may be borne
by carriers operating at the Airport, including American, through increased
landing fees and/or other charges since certain of the potentially responsible
parties are no longer in business. The future increase in landing fees and/or
other charges may be material but 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 Company's
consolidated financial position, results of operations or cash flows. Amounts
recorded for environmental issues are based on the Company's current assessments
of the ultimate outcome and, accordingly, could increase or decrease as these
assessments change.
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, 2000, the
carrying value of the remaining aircraft American has committed to sell was
approximately $462 million.
AMR and American have included event risk covenants in approximately $2.2
billion of indebtedness. 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.
40
<PAGE> 42
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Special facility revenue bonds have been issued by certain
municipalities, primarily to purchase equipment and improve airport facilities
that are leased by American. In certain cases, the bond issue proceeds were
loaned to American and are included in long-term debt. Certain bonds have rates
that are periodically reset and are remarketed by various agents. In certain
circumstances, American may be required to purchase up to $544 million of the
special facility revenue bonds prior to scheduled maturity, in which case
American has the right to resell the bonds or to use the bonds to offset its
lease or debt obligations. American may borrow the purchase price of these bonds
under standby letter of credit agreements. At American's option, certain letters
of credit are secured by funds held by bond trustees and by approximately $540
million of short-term investments.
4. LEASES
AMR's subsidiaries lease various types of equipment and property,
including aircraft, and airport and off-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, 2000, were (in millions):
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
------- ---------
<S> <C> <C>
2001 $ 320 $ 984
2002 276 921
2003 195 931
2004 246 913
2005 178 900
2006 and subsequent 867 11,306
------ ------
2,082(1) $15,955(2)
=======
Less amount representing interest 532
------
Present value of net minimum lease payments $1,550
======
</TABLE>
(1) Includes $191 million guaranteed by AMR relating to special facility
revenue bonds issued by municipalities.
(2) Includes $6.4 billion guaranteed by AMR relating to special facility
revenue bonds issued by municipalities.
At December 31, 2000, the Company had 201 jet aircraft and 39 turboprop
aircraft under operating leases, and 65 jet aircraft and 57 turboprop aircraft
under capital leases. 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 lessor's cost of the aircraft or at a predetermined fixed amount.
During 1996, American made prepayments on the cancelable operating leases
it had on 12 of its Boeing 767-300 aircraft. Upon the expiration of the amended
leases, American can purchase the aircraft for a nominal amount. As a result,
the aircraft were recorded as flight equipment under capital leases. During 2000
and 1999, the Company exercised its option to purchase six and two of the Boeing
767-300 aircraft for a nominal fee, respectively. As such, these aircraft were
reclassified from flight equipment under capital leases to owned flight
equipment.
Rent expense, excluding landing fees, was $1.3 billion for 2000 and 1999,
and $1.1 billion for 1998.
41
<PAGE> 43
5. INDEBTEDNESS
Long-term debt (excluding amounts maturing within one year) consisted of
(in millions):
<TABLE>
<CAPTION>
December 31,
-----------------
2000 1999
------ ------
<S> <C> <C>
Secured variable and fixed rate indebtedness due through 2016
(effective rates from 6.71% - 9.597% at December 31, 2000) $3,209 $2,556
7.875% - 10.62% notes due through 2039 345 812
9.0% - 10.20% debentures due through 2021 332 437
6.0% - 7.10% bonds due through 2031 176 176
Unsecured variable rate indebtedness due through 2024
(3.55% at December 31, 2000) 86 86
Other 3 11
------ ------
Long-term debt, less current maturities $4,151 $4,078
====== ======
</TABLE>
Maturities of long-term debt (including sinking fund requirements) for
the next five years are: 2001 - $569 million; 2002 - $201 million; 2003 - $169
million; 2004 - $228 million; 2005 - $482 million.
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 ($9 million
after-tax).
American has $1.0 billion in credit facility agreements that expire
December 15, 2005, subject to certain conditions. At American's option, interest
on these agreements can be calculated on one of several different bases. For
most borrowings, American would anticipate choosing a floating rate based upon
the London Interbank Offered Rate (LIBOR). At December 31, 2000, no borrowings
were outstanding under these agreements.
Certain debt is secured by aircraft, engines, equipment and other assets
having a net book value of approximately $3.4 billion. In addition, certain of
American's debt and credit facility agreements contain restrictive covenants,
including a minimum net worth requirement, which could limit American's ability
to pay dividends. At December 31, 2000, under the most restrictive provisions of
those debt and credit facility agreements, approximately $1.5 billion of the
retained earnings of American was available for payment of dividends to AMR.
Cash payments for interest, net of capitalized interest, were $301
million, $237 million and $277 million for 2000, 1999 and 1998, respectively.
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As part of the Company's risk management program, AMR uses a variety of
financial instruments, including interest rate swaps, fuel swap and option
contracts, and currency exchange agreements. The Company does not hold or issue
derivative financial instruments for trading purposes.
NOTIONAL AMOUNTS AND CREDIT EXPOSURES OF DERIVATIVES
The notional amounts of derivative financial instruments summarized in
the tables which follow do not represent amounts exchanged between the parties
and, therefore, are not a measure of the Company's exposure resulting from its
use of derivatives. The amounts exchanged are calculated based on the notional
amounts and other terms of the instruments, which relate to interest rates,
exchange rates or other indices.
42
<PAGE> 44
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
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. As of December 31, 2000, no collateral was required under these
agreements, and the Company does not expect to post collateral in the near
future.
INTEREST RATE RISK MANAGEMENT
American utilizes interest rate swap contracts to effectively convert a
portion of its fixed-rate obligations to floating-rate obligations. These
agreements involve the exchange of amounts based on a floating interest rate for
amounts based on fixed interest rates over the life of the agreement without an
exchange of the notional amount upon which the payments are based. The
differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the obligation. The
related amount payable to or receivable from counterparties is included in
current liabilities or assets. The fair values of the swap agreements are not
recognized in the financial statements. Gains and losses on terminations of
interest rate swap agreements are deferred as an adjustment to the carrying
amount of the outstanding obligation and amortized as an adjustment to interest
expense related to the obligation over the remaining term of the original
contract life of the terminated swap agreement. In the event of the early
extinguishment of a designated obligation, any realized or unrealized gain or
loss from the swap would be recognized in income coincident with the
extinguishment.
During 2000, the Company terminated interest rate swap agreements on
notional amounts of approximately $425 million which had effectively converted a
portion of its fixed-rate obligations to floating-rate obligations. The cost of
terminating these interest rate swap agreements was not material.
The following table indicates the notional amounts and fair values of the
Company's interest rate swap agreements (in millions):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
2000 1999
--------------------- ---------------------
Notional Notional
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Interest rate swap agreements $ 158 $ 4 $ 696 $ (9)
</TABLE>
The fair values represent the amount the Company would receive or pay if
the agreements were terminated at December 31, 2000 and 1999, respectively.
At December 31, 2000, the weighted-average remaining life of the interest
rate swap agreements in effect was 9.7 years. The weighted-average floating
rates and fixed rates on the contracts outstanding were:
<TABLE>
<CAPTION>
December 31,
----------------
2000 1999
------ ------
<S> <C> <C>
Average floating rate 6.798% 5.855%
Average fixed rate 6.631% 6.593%
</TABLE>
Floating rates are based primarily on LIBOR and may change significantly,
affecting future cash flows.
43
<PAGE> 45
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FUEL PRICE RISK MANAGEMENT
American enters into fuel swap and option contracts to protect against
increases in jet fuel prices. Under the fuel swap agreements, American receives
or makes payments based on the difference between a fixed price and a variable
price for certain fuel commodities. Under the fuel option agreements, American
pays a premium to cap prices at a fixed level. The changes in market value of
such agreements have a high correlation to the price changes of the fuel being
hedged. Effective gains or losses on fuel hedging agreements are recognized as a
component of fuel expense when the underlying fuel being hedged is used. Any
premiums paid to enter into option contracts are recorded as assets. Gains and
losses on fuel hedging agreements would be recognized immediately should the
changes in the market value of the agreements cease to have a high correlation
to the price changes of the fuel being hedged. At December 31, 2000, American
had fuel hedging agreements with broker-dealers on approximately 2.3 billion
gallons of fuel products, which represented approximately 40 percent of its
expected 2001 fuel needs, approximately 15 percent of its expected 2002 fuel
needs, and approximately seven percent of its expected 2003 fuel needs. The fair
value of the Company's fuel hedging agreements at December 31, 2000,
representing the amount the Company would receive to terminate the agreements,
totaled $223 million. At December 31, 1999, American had fuel hedging agreements
with broker-dealers on approximately 2.0 billion gallons of fuel products, which
represents approximately 48 percent of its expected 2000 fuel needs and
approximately 10 percent of its expected 2001 fuel needs. The fair value of the
Company's fuel hedging agreements at December 31, 1999, representing the amount
the Company would receive to terminate the agreements, totaled $232 million.
FOREIGN EXCHANGE RISK MANAGEMENT
To hedge against the risk of future exchange rate fluctuations on a
portion of American's foreign cash flows, the Company enters into various
currency put option agreements on a number of foreign currencies. The option
contracts are denominated in the same foreign currency in which the projected
foreign cash flows are expected to occur. These contracts are designated and
effective as hedges of probable quarterly foreign cash flows for various periods
through December 31, 2001, which otherwise would expose the Company to foreign
currency risk. Realized gains on the currency put option agreements are
recognized as a component of passenger revenues. At December 31, 2000 and 1999,
the notional amount related to these options totaled approximately $456 million
and $445 million, respectively, and the fair value, representing the amount AMR
would receive to terminate the agreements, totaled approximately $20 million and
$14 million, respectively.
The Company has entered into Japanese yen currency exchange agreements to
effectively convert certain yen-based lease obligations into dollar-based
obligations. Changes in the value of the agreements due to exchange rate
fluctuations are offset by changes in the value of the yen-denominated lease
obligations translated at the current exchange rate. Discounts or premiums are
accreted or amortized as an adjustment to interest expense over the lives of the
underlying lease obligations. The related amounts due to or from counterparties
are included in other liabilities or other assets. The net fair values of the
Company's yen currency exchange agreements, representing the amount the Company
would pay or receive to terminate the agreements, were (in millions):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
2000 1999
----------------------- -----------------------
Notional Notional
Amount Fair Value Amount Fair Value
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Japanese yen 31.0 billion $ (5) 33.6 billion $ 41
</TABLE>
The exchange rates on the Japanese yen agreements range from 66.5 to
113.5 yen per U.S. dollar.
44
<PAGE> 46
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's 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
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts and estimated fair values of the Company's
long-term debt, including current maturities, were (in millions):
<TABLE>
<CAPTION>
December 31,
----------------------------------------
2000 1999
------------------ ------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Secured variable and fixed rate
indebtedness $3,366 $3,455 $2,651 $2,613
7.875% - 10.62% notes 749 759 1,014 1,024
9.0% - 10.20% debentures 332 358 437 469
6.0% - 7.10% bonds 176 179 176 174
Unsecured variable rate indebtedness
86 86 86 86
Other 11 11 16 16
------ ------ ------ ------
$4,720 $4,848 $4,380 $4,382
====== ====== ====== ======
</TABLE>
All other financial instruments, except for the investment in Equant, are
either carried at fair value or their carrying value approximates fair value.
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended (SFAS 133), was adopted by the Company on January 1,
2001. 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
derivative's change in fair value will be immediately recognized in earnings.
The adoption of SFAS 133 did not have a material impact on the Company's net
earnings. However, the Company recorded a transition adjustment of approximately
$100 million in accumulated other comprehensive income in the first quarter of
2001.
7. INCOME TAXES
The significant components of the income tax provision were (in
millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current $ 47 $167 $451
Deferred 461 183 268
---- ---- ----
$508 $350 $719
==== ==== ====
</TABLE>
The income tax provision includes a federal income tax provision of $454
million, $290 million and $628 million and a state income tax provision of $47
million, $49 million and $78 million for the years ended December 31, 2000, 1999
and 1998, respectively.
45
<PAGE> 47
7. INCOME TAXES (CONTINUED)
The income tax provision differed from amounts computed at the statutory
federal income tax rate as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Statutory income tax provision $ 450 $ 352 $ 641
State income tax provision, net of federal benefit 30 32 51
Meal expense 19 19 18
Change in valuation allowance -- (67) (4)
Other, net 9 14 13
----- ----- -----
Income tax provision $ 508 $ 350 $ 719
===== ===== =====
</TABLE>
The change in valuation allowance in 1999 relates to the realization of a
tax loss on the sale of the Company's investment in Canadian (see Note 2). The
change in valuation allowance in 1998 relates to the utilization of foreign tax
credits.
The components of AMR's deferred tax assets and liabilities were (in
millions):
<TABLE>
<CAPTION>
December 31,
--------------------
2000 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits other than pensions $ 632 $ 614
Rent expense 522 449
Frequent flyer obligation 362 307
Gains from lease transactions 225 238
Alternative minimum tax credit carryforwards 184 289
Other 541 520
------- -------
Total deferred tax assets 2,466 2,417
------- -------
Deferred tax liabilities:
Accelerated depreciation and amortization (3,822) (3,381)
Pensions (89) (50)
Other (245) (220)
------- -------
Total deferred tax liabilities (4,156) (3,651)
------- -------
Net deferred tax liability $(1,690) $(1,234)
======= =======
</TABLE>
At December 31, 2000, AMR had available for federal income tax purposes
approximately $184 million of alternative minimum tax credit carryforwards which
are available for an indefinite period.
Cash payments for income taxes were $49 million, $71 million and $408
million for 2000, 1999 and 1998, respectively.
8. COMMON AND PREFERRED STOCK
On June 9, 1998, a two-for-one stock split in the form of a stock
dividend was effective for shareholders of record on May 26, 1998. All prior
period share and earnings per share amounts reflect the stock split. The Company
has 20 million shares of preferred stock (without par value) authorized at
December 31, 2000 and 1999.
46
<PAGE> 48
9. STOCK AWARDS AND OPTIONS
Under the 1998 Long Term Incentive Plan, as amended, officers and key
employees of AMR and its subsidiaries may be granted stock options, stock
appreciation rights, restricted stock, deferred stock, stock purchase rights,
other stock-based awards and/or performance-related awards, including cash
bonuses. The total number of common shares authorized for distribution under the
1998 Long Term Incentive Plan is 23,700,000 shares. The 1998 Long Term Incentive
Plan, the successor to the 1988 Long Term Incentive Plan, which expired May 18,
1998, will terminate no later than May 21, 2008. Options granted under the 1988
and 1998 Long Term Incentive Plans (collectively, the Plans) are awarded with an
exercise price equal to the fair market value of the stock on date of grant,
become exercisable in equal annual installments over five years following the
date of grant and expire 10 years from the date of grant. Stock appreciation
rights may be granted in tandem with options awarded.
As a result of the Sabre spin-off in March 2000, AMR's stock price was
adjusted from $60 9/16 to $25 9/16 by the New York Stock Exchange. Accordingly,
all outstanding stock options and other stock-based awards, including the
related exercise prices, were adjusted to preserve the intrinsic value of the
stock options and awards. See Note 12 for information regarding the Sabre
spin-off.
In 2000, 1999 and 1998, the total charge for stock compensation expense
included in wages, salaries and benefits expense was $52 million, $53 million
and $52 million, respectively. No compensation expense was recognized for stock
option grants under the Plans since the exercise price was the fair market value
of the underlying stock on the date of grant.
Stock option activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
2000 1999 1998
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 5,219,634 $52.06 4,147,124 $46.60 3,506,774 $38.77
Sabre adjustment 7,150,899 -- -- -- -- --
Granted 6,003,111 30.21 1,539,585 63.19 1,216,720 63.01
Exercised (1,557,034) 32.85 (258,875) 68.17 (470,810) 31.82
Canceled (247,703) 23.38 (208,200) 49.96 (105,560) 42.34
---------- ---------- ----------
Outstanding at December 31 16,568,907 $25.42 5,219,634 $52.06 4,147,124 $46.60
========== ========== ==========
Exercisable options outstanding
at December 31 5,334,444 $19.79 2,012,889 $40.63 1,586,974 $36.49
========== ========== ==========
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 2000:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Range of Number of Average Average Number of Average
Exercise Options Remaining Exercise Options Exercise
Prices Outstanding Life (years) Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Under $20 3,073,130 4.21 $14.93 2,769,990 $14.75
$20-$30 8,113,906 8.26 24.71 1,992,625 23.62
Over $30 5,381,871 9.14 32.48 571,829 30.83
---------- ---- ------ --------- ------
16,568,907 7.79 $25.42 5,334,444 $19.79
========== =========
</TABLE>
47
<PAGE> 49
9. STOCK AWARDS AND OPTIONS (CONTINUED)
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:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Outstanding at January 1 5,420,028 5,791,381 7,438,220
Sabre adjustment 7,421,048 -- --
Exercised (1,850,886) (371,353) (1,646,839)
----------- ----------- -----------
Outstanding at December 31 10,990,190 5,420,028 5,791,381
=========== =========== ===========
</TABLE>
The weighted-average grant date fair value of all stock option awards
granted during 2000, 1999 and 1998 was $16.54, $23.17 and $21.15, 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
individual's retirement from AMR or, in certain circumstances, will vest on a
pro rata basis. Deferred stock activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding at January 1 2,310,680 2,401,532 2,457,190
Sabre adjustment 3,165,632 -- --
Granted -- 146,200 185,812
Issued (479,177) (122,042) (190,911)
Canceled (40,638) (115,010) (50,559)
---------- ---------- ----------
Outstanding at December 31 4,956,497 2,310,680 2,401,532
========== ========== ==========
</TABLE>
The weighted-average grant date fair value of career equity awards
granted during 1999 and 1998 was $63.54 and $57.77, respectively.
48
<PAGE> 50
9. STOCK AWARDS AND OPTIONS (CONTINUED)
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 Company's stock at the date of grant. The shares vest
over a three-year performance period based upon certain specified financial
measures of AMR. Performance share activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding at January 1 1,215,644 1,565,616 1,737,274
Sabre adjustment 1,665,432 -- --
Granted 1,277,539 509,822 644,680
Issued (399,517) (208,265) (205,458)
Awards settled in cash (1,200,177) (513,370) (522,234)
Canceled (51,166) (138,159) (88,646)
---------- ---------- ----------
Outstanding at December 31 2,507,755 1,215,644 1,565,616
========== ========== ==========
</TABLE>
The weighted-average grant date fair value of performance share awards
granted during 2000, 1999 and 1998 was $32.93, $62.95 and $62.06, respectively.
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 from continuing operations before extraordinary loss and
earnings per share from continuing operations before extraordinary loss has 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 2000, 1999 and 1998: risk-free interest rates
ranging from 5.01% to 6.15%; dividend yields of 0%; expected stock volatility
ranging from 29.9% to 43.5%; 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 Company's 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
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. In addition,
because SFAS 123 is applicable only to options and stock-based awards granted
subsequent to December 31, 1994, its pro forma effect is not fully reflected in
years prior to 1999.
49
<PAGE> 51
9. STOCK AWARDS AND OPTIONS (CONTINUED)
The following table shows the Company's pro forma income from continuing
operations before extraordinary loss and earnings 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):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Income from continuing operations before
extraordinary loss:
As reported $ 779 $ 656 $ 1,114
Pro forma 772 651 1,114
Basic earnings per share from continuing
operations before extraordinary loss:
As reported $ 5.20 $ 4.30 $ 6.60
Pro forma 5.15 4.27 6.60
Diluted earnings per share from continuing
operations before extraordinary loss:
As reported $ 4.81 $ 4.17 $ 6.38
Pro forma 4.77 4.14 6.38
</TABLE>
10. RETIREMENT BENEFITS
All regular employees of the Company are eligible to participate in
pension plans. The defined benefit plans provide benefits for participating
employees based on years of service and average compensation for a specified
period of time before retirement. Airline pilots and flight engineers also
participate in defined contribution plans for which Company contributions are
determined as a percentage of participant compensation.
In addition to pension benefits, other postretirement benefits, including
certain health care and life insurance benefits, are also provided to retired
employees. The amount of health care benefits is limited to lifetime maximums as
outlined in the plan. Substantially all employees of American and employees of
certain other subsidiaries may become eligible for these benefits if they
satisfy eligibility requirements during their working lives.
Certain employee groups make contributions toward funding a portion of
their retiree health care benefits during their working lives. AMR funds
benefits as incurred and makes contributions to match employee prefunding.
50
<PAGE> 52
10. RETIREMENT BENEFITS (CONTINUED)
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, 2000 and 1999, and a statement of funded status as of December 31, 2000 and
1999 (in millions):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Reconciliation of benefit obligation
Obligation at January 1 $ 5,628 $ 6,117 $ 1,306 $ 1,526
Service cost 213 236 43 56
Interest cost 467 433 108 108
Actuarial loss (gain) 499 (849) 328 (311)
Plan amendments -- 75 -- --
Benefit payments (373) (388) (77) (70)
Curtailments/Special termination benefits -- 4 -- (3)
------- ------- ------- -------
Obligation at December 31 $ 6,434 $ 5,628 $ 1,708 $ 1,306
======= ======= ======= =======
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1 $ 5,282 $ 5,564 $ 72 $ 62
Actual return on plan assets 735 7 5 1
Employer contributions 85 100 88 79
Benefit payments (373) (388) (77) (70)
Transfers 2 (1) -- --
------- ------- ------- -------
Fair value of plan assets at December 31 $ 5,731 $ 5,282 $ 88 $ 72
======= ======= ======= =======
Funded status
Accumulated benefit obligation (ABO) $ 5,306 $ 4,700 $ 1,708 $ 1,306
Projected benefit obligation (PBO) 6,434 5,628 -- --
Fair value of assets 5,731 5,282 88 72
Funded status at December 31 (703) (346) (1,620) (1,234)
Unrecognized loss (gain) 523 288 (51) (395)
Unrecognized prior service cost 129 139 (35) (40)
Unrecognized transition asset (6) (7) -- --
------- ------- ------- -------
Prepaid (accrued) benefit cost $ (57) $ 74 $(1,706) $(1,669)
======= ======= ======= =======
</TABLE>
At December 31, 2000 and 1999, plan assets of approximately $88 million
and $71 million, respectively, were invested in shares of mutual funds managed
by a subsidiary of AMR.
51
<PAGE> 53
10. RETIREMENT BENEFITS (CONTINUED)
The following tables provide the components of net periodic benefit cost
for the years ended December 31, 2000, 1999 and 1998 (in millions):
<TABLE>
<CAPTION>
Pension Benefits
---------------------------
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Components of net periodic benefit cost
Defined benefit plans:
Service cost $ 213 $ 236 $ 213
Interest cost 467 433 418
Expected return on assets (490) (514) (478)
Amortization of:
Transition asset (1) (4) (11)
Prior service cost 10 5 4
Unrecognized net loss 17 21 22
Settlement loss -- -- 6
----- ----- -----
Net periodic benefit cost for defined benefit
plans 216 177 174
Defined contribution plans 174 155 158
----- ----- -----
Total $ 390 $ 332 $ 332
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Other Benefits
---------------------------
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 43 $ 56 $ 52
Interest cost 108 108 99
Expected return on assets (7) (6) (5)
Amortization of:
Prior service cost (5) (5) (5)
Unrecognized net gain (14) -- (2)
----- ----- -----
Net periodic benefit cost $ 125 $ 153 $ 139
===== ===== =====
</TABLE>
The following table provides the amounts recognized in the consolidated
balance sheets as of December 31, 2000 and 1999 (in millions):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Prepaid benefit cost $ 107 $ 244 $ -- $ --
Accrued benefit liability (225) (170) (1,706) (1,669)
Additional minimum liability (21) (15) -- --
Intangible asset 72 13 -- --
Accumulated other comprehensive income 10 2 -- --
------- ------- ------- -------
Net amount recognized $ (57) $ 74 $(1,706) $(1,669)
======= ======= ======= =======
</TABLE>
52
<PAGE> 54
10. RETIREMENT BENEFITS (CONTINUED)
The following assumptions were used by the Company in the measurement of
the benefit obligation as of December 31:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted-average assumptions
Discount rate 7.75% 8.25% 7.75% 8.25%
Salary scale 4.26 4.26 -- --
Expected return on plan assets 9.50 9.50 9.50 9.50
</TABLE>
The assumed health care cost trend rate was changed to seven percent,
effective December 31, 2000, decreasing gradually to an ultimate rate of four
percent by 2004. The previously assumed health care cost trend rate was five
percent in 1999, decreasing gradually to an ultimate rate of four percent by
2001.
A one percentage point change in the assumed health care cost trend rates
would have the following effects (in millions):
<TABLE>
<CAPTION>
One percent One percent
increase decrease
----------- -----------
<S> <C> <C>
Impact on 2000 service and interest cost $ 20 $ (19)
Impact on postretirement benefit obligation
as of December 31, 2000 $137 $(131)
</TABLE>
Effective January 1, 2001, American established a defined contribution
plan for non-contract employees in which the Company will contribute a match up
to 5.5 percent on employee contributions of pensionable earnings to the
Company's existing 401(k) plan. During 2000, American provided a one-time
election for current non-contract employees to remain in the defined benefit
plan or discontinue accruing future credited service in the defined benefit plan
as of January 1, 2001 and begin participation in the defined contribution plan.
53
<PAGE> 55
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in millions, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
NUMERATOR:
Numerator for earnings per share -
income from continuing operations
before extraordinary loss $ 779 $ 656 $ 1,114
======= ======= =======
DENOMINATOR:
Denominator for basic earnings per
share - weighted-average shares 150 152 169
Effect of dilutive securities:
Employee options and shares 27 12 13
Assumed treasury shares purchased (15) (7) (7)
------- ------- -------
Dilutive potential common shares 12 5 6
Denominator for diluted earnings per
share - adjusted weighted-average
shares 162 157 175
======= ======= =======
Basic earnings per share from
continuing operations before
extraordinary loss $ 5.20 $ 4.30 $ 6.60
======= ======= =======
Diluted earnings per share from continuing
operations before extraordinary loss $ 4.81 $ 4.17 $ 6.38
======= ======= =======
</TABLE>
12. DISCONTINUED OPERATIONS
During the first quarter of 1999, the Company sold AMR Services, AMR
Combs and TeleService Resources. 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 AMR's
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 Sabre's Class B common stock for an equal number of shares of Sabre's
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 AMR's 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 AMR's
entire ownership interest in Sabre's common stock resulted in a reduction to
AMR's retained earnings in March of 2000 equal to the carrying value of the
Company's investment in Sabre on March 15, 2000, which approximated $581
million. The fair market value of AMR's 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
54
<PAGE> 56
12. DISCONTINUED OPERATIONS (CONTINUED)
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.
The results of operations for Sabre, AMR Services, AMR Combs and
TeleService Resources have been reflected in the consolidated statements of
operations as discontinued operations. Summarized financial information of the
discontinued operations is as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
SABRE
Revenues $ 542 $2,435 $2,306
Minority interest 10 57 40
Income taxes 36 196 140
Net income 43 265 192
AMR SERVICES, AMR COMBS AND
TELESERVICE RESOURCES
Revenues $ -- $ 97 $ 513
Income taxes -- -- 7
Net income -- -- 8
</TABLE>
The historical assets and liabilities of Sabre, AMR Services, AMR Combs
and TeleService Resources at December 31, 1999, which have been reflected on a
net basis in other assets on the consolidated balance sheets, are summarized as
follows (in millions):
<TABLE>
<S> <C>
Current assets $ 976
Total assets 1,951
Current liabilities 525
Total liabilities, including minority interest 912
Net assets of discontinued operations 1,039
</TABLE>
13. SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", as amended (SFAS 131),
requires that a public company report annual and interim financial and
descriptive information about its reportable operating segments. Operating
segments, as defined, are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
The Company has two primary operating segments, consisting primarily of
American and AMR Eagle, which represent one reportable segment. American is one
of the largest scheduled passenger airlines in the world. At the end of 2000,
American provided scheduled jet service to more than 169 destinations throughout
North America, the Caribbean, Latin America, Europe and the Pacific. American is
also one of the largest scheduled air freight carriers in the world, providing a
full range of freight and mail services to shippers throughout its system. AMR
Eagle owns two regional airlines which do business as "American Eagle" --
American Eagle Airlines, Inc. and Executive Airlines, Inc. The American Eagle
carriers provide connecting service from eight of American's high-traffic cities
to smaller markets throughout the United States, Canada, the Bahamas and the
Caribbean.
55
<PAGE> 57
13. SEGMENT REPORTING (CONTINUED)
Revenues from other segments are below the quantitative threshold for
determining reportable segments and consist primarily of revenues from AMR
Investment Services, Inc., Americas Ground Services and Airline Management
Services. The difference between the financial information of the Company's one
reportable segment and the financial information included in the consolidated
statements of operations and balance sheets as a result of these entities is not
material.
The Company's operating revenues by geographic region are summarized
below (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Domestic $13,881 $12,563 $12,262
Latin America 2,907 2,697 2,830
Europe 2,338 1,984 2,039
Pacific 577 486 385
------- ------- -------
Total consolidated revenues $19,703 $17,730 $17,516
======= ======= =======
</TABLE>
The Company attributes operating revenues by geographic region based upon
the origin and destination of each flight segment. The Company's tangible assets
consist primarily of flight equipment which is mobile across geographic markets
and, therefore, has not been allocated.
56
<PAGE> 58
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 2000 and 1999 (in
millions, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
2000
Operating revenues $ 4,577 $ 5,011 $ 5,256 $ 4,859
Operating income 212 517 572 80
Income from continuing operations
before extraordinary loss 89 321 322 47
Net earnings 132 321 313 47
Earnings per share:
Basic
From continuing operations
before extraordinary loss 0.60 2.15 2.14 0.31
Net earnings 0.89 2.15 2.08 0.31
Diluted
From continuing operations
before extraordinary loss 0.57 1.96 1.96 0.29
Net earnings 0.86 1.96 1.91 0.29
1999
Operating revenues $ 4,007 $ 4,541 $ 4,695 $ 4,487
Operating income 46 414 426 270
Income from continuing operations 17 216 213 210
Net earnings 158 268 279 280
Earnings per share:
Basic
From continuing operations 0.11 1.41 1.42 1.42
Net earnings 0.99 1.76 1.86 1.89
Diluted
From continuing operations 0.11 1.36 1.38 1.37
Net earnings 0.96 1.70 1.76 1.84
</TABLE>
During the second quarter of 2000, the Company recorded an after-tax gain
of approximately $36 million from the sale of the Company's warrants to purchase
5.5 million shares of priceline common stock (see Note 2). During the third
quarter of 2000, the Company recorded a $9 million after-tax extraordinary loss
on the repurchase prior to scheduled maturity of long-term debt (see Note 5).
Results for the fourth quarter of 2000 include an after-tax gain of
approximately $26 million for the recovery of start-up expenses related to the
Canadian services agreement (see Note 2) and an after-tax charge of
approximately $35 million for the Company's employee home computer program.
During the first quarter of 1999, the Company recorded an after-tax gain
of approximately $64 million from the sale of AMR Services, AMR Combs and
TeleService Resources, and a $37 million after-tax gain from the sale of a
portion of the Company's holdings in Equant, of which approximately $18 million
is recorded in income from discontinued operations (see Note 2). Results for the
fourth quarter of 1999 include the following: (i) a $25 million after-tax gain
related to the Company's sale of its investment in the preferred stock of
Canadian and a $67 million tax benefit resulting from the tax loss on the
Company's investment in Canadian (see Note 2), (ii) an after-tax gain of
approximately $81 million related to the sale of a portion of the Company's
holdings in Equant, of which approximately $53 million is recorded in income
from discontinued operations (see Note 2), (iii) a $28 million after-tax
increase in passenger revenue resulting from a change in estimate related to
certain passenger revenues earned during the first nine months of 1999, and (iv)
a $25 million after-tax provision for certain litigation settlements.
57
<PAGE> 59
15. SUBSEQUENT EVENTS
On January 10, 2001, the Company announced three transactions that are
expected to substantially increase the scope of its existing network. First, the
Company announced that it had agreed to purchase substantially all of the assets
of Trans World Airlines, Inc. (TWA) for approximately $500 million in cash and
to assume approximately $3.5 billion of TWA's obligations. The Company's
agreement with TWA contemplated that TWA would file for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code and conduct an auction of its
assets under the auspices of the Bankruptcy Court. During the auction, other
credible offers would compete with the Company's offer. TWA filed for bankruptcy
protection on January 10, 2001. In conjunction therewith, the Company also
agreed to provide TWA with up to $200 million in debtor-in-possession financing
to facilitate TWA's ability to maintain its operations until the completion of
this transaction. The amount available under this facility was later increased
to $330 million. As of March 19, 2001, approximately $289 million had been
provided via the debtor-in-possession financing.
The auction of TWA's assets was commenced on March 5, 2001, and recessed
to March 7, 2001. During the recess, the Company increased its cash bid to $625
million and agreed to leave in the TWA estate certain aircraft security
deposits, advance rental payments and rental rebates that were estimated to
bring approximately $117 million of value to TWA. On March 7, 2001, TWA's board
selected the Company's bid as the "highest and best" offer, and on March 12,
2001, the U.S. Bankruptcy Court, District of Delaware, entered an order
approving the sale of TWA's assets to the Company. Consummation of the
transaction is subject to several contingencies, including the waiver by TWA's
unions of certain provisions of their collective bargaining agreements. The
approval of the U.S. Department of Justice was obtained on March 16, 2001.
Certain parties have filed appeals of the Bankruptcy Court's sale order, and
have sought a stay of the transaction, pending the appeals. A provision of the
Bankruptcy Code will permit the Company to close the transaction, despite
pending appeals, unless a stay is granted. If a stay is granted, the Company
would anticipate that the appeal process would be expedited. Upon the closing of
the transaction, TWA will be integrated into American's operations with a
continued hub operation in St. Louis.
Secondly, the Company announced that it has agreed to acquire from United
Airlines, Inc. (United) certain key strategic assets (slots, gates and aircraft)
of US Airways, Inc. (US Airways) upon the consummation of the previously
announced merger between United and US Airways. In addition to the acquisition
of these assets, American will lease a number of slots and gates from United so
that American may operate half of the northeast Shuttle (New York/Washington
DC/Boston). United will operate the other half of the Shuttle. For these assets,
American will pay approximately $1.2 billion in cash to United and assume
approximately $300 million in aircraft operating leases. The consummation of
these transactions is contingent upon the closing of the proposed United/US
Airways merger. Also, the acquisition of aircraft is generally dependent upon a
certain number of US Airways' Boeing 757 cockpit crew members transferring to
American's payroll.
Finally, American has agreed to acquire a 49 percent stake in, and to
enter into an exclusive marketing agreement with, DC Air LLC (DC Air). American
has agreed to pay $82 million in cash for its ownership stake. American will
have a right of first refusal on the acquisition of the remaining 51 percent
stake in DC Air. American will also lease to DC Air a certain number of Fokker
100 aircraft with necessary crews (known in the industry as a "wet lease").
These wet leased aircraft will be used by DC Air in its operations. DC Air is
the first significant new entrant at Ronald Reagan Washington National Airport
(DCA) in over a decade. DC Air will acquire the assets needed to begin its DCA
operations from United/US Airways upon the consummation of the merger between
the two carriers. American's investment in DC Air and the other arrangements
described above are contingent upon the consummation of the merger between
United and US Airways.
As a result of the above transactions, and for several other reasons,
American and American Eagle have initiated an impairment review of certain fleet
types 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." This review could result in an impairment charge to be taken by
the Company in 2001. The size of any resulting 2001 charge is not presently
known, but may be significant.
58
<PAGE> 60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 16, 2001. Information concerning
the executive officers is included in Part I of this report on page 15.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 16, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 16, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 16, 2001.
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements and Independent Auditors' Report are
filed as part of this report:
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Auditors 30
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998 31-32
Consolidated Balance Sheets at December 31, 2000 and 1999 33-34
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998 35
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998 36
Notes to Consolidated Financial Statements 37-58
</TABLE>
59
<PAGE> 61
(2) The following financial statement schedule and Independent Auditors'
Report are filed as part of this report:
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Auditors 69
Schedule II Valuation and Qualifying Accounts and Reserves 70
</TABLE>
Schedules not included have been omitted because they are not
applicable or because the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits required to be filed by Item 601 of Regulation S-K. (Where the
amount of securities authorized to be issued under any of AMR's
long-term debt agreements does not exceed 10 percent of AMR's assets,
pursuant to paragraph (b)(4) of Item 601 of Regulation S-K, in lieu of
filing such as an exhibit, AMR hereby agrees to furnish to the
Commission upon request a copy of any agreement with respect to such
long-term debt.)
<TABLE>
<CAPTION>
EXHIBIT
-------
<S> <C>
3.1 Restated Certificate of Incorporation of AMR, incorporated by
reference to AMR's Registration Statement on Form S-4, file
number 33-55191.
3.2 Bylaws of AMR, amended as of November 18, 1998, incorporated
by reference to Exhibit 3.2 to AMR's report on Form 10-K for
the year ended December 31, 1998.
3.3 Bylaws of AMR, amended as of January 19, 2000, incorporated by
reference to Exhibit 3.3 to AMR's report on Form 10-K for the
year ended December 31, 1999.
10.1 Employment Agreement among AMR, American Airlines and Robert
L. Crandall, dated January 1, 1988, incorporated by reference
to Exhibit 10(t) to AMR's report on Form 10-Q for the period
ended March 31, 1988; amendments thereto incorporated by
reference to Exhibit 10(ff) to AMR's report on Form 10-K for
the year ended December 31, 1989, Exhibit 10(tt) to AMR's
report on Form 10-K for the year ended December 31, 1990,
Exhibit 10(uu) to AMR's report on Form 10-Q for the period
ended June 30, 1992, and Exhibit 10(ooo) to AMR's report on
Form 10-Q for the period ended March 31, 1995.
10.2 Amended and Restated Employment Agreement among AMR, American
Airlines and Robert L. Crandall, dated January 21, 1998,
incorporated by reference to Exhibit 10.2 to AMR's report on
Form 10-K for the year ended December 31, 1997.
10.3 Compensation and Benefit Agreement relative to the retirement
of Robert L. Crandall, between AMR and Robert L. Crandall,
dated September 18, 1998, incorporated by reference to Exhibit
10.3 to AMR's report on Form 10-K for the year ended December
31, 1998.
10.4 Irrevocable Executive Trust Agreement, dated as of May 1,
1992, between AMR and Wachovia Bank of North Carolina N.A.,
incorporated by reference to Exhibit 10(vv) to AMR's report on
Form 10-K for the year ended December 31, 1992.
10.5 Deferred Compensation Agreement, dated April 14, 1973, as
amended March 1, 1975, between American and Robert L.
Crandall, incorporated by reference to Exhibit 10(c)(7) to
American's Registration Statement No. 2-76709.
10.6 Form of Executive's Termination Benefits Agreement
incorporated by reference to Exhibit 10(p) to AMR's report on
Form 10-K for the year ended December 31, 1985.
</TABLE>
60
<PAGE> 62
<TABLE>
<S> <C>
10.7 Management Severance Allowance, dated as of February 23, 1990,
for levels 1-4 employees of American Airlines, Inc.,
incorporated by reference to Exhibit 10(oo) to AMR's report on
Form 10-K for the year ended December 31, 1989.
10.8 Management Severance Allowance, dated as of February 23, 1990,
for level 5 and above employees of American Airlines, Inc.,
incorporated by reference to Exhibit 10(pp) to AMR's report on
Form 10-K for the year ended December 31, 1989.
10.9 Description of informal arrangement relating to deferral of
payment of directors' fees, incorporated by reference to
Exhibit 10(c)(11) to American's Registration Statement No.
2-76709.
10.10 Directors Stock Equivalent Purchase Plan, incorporated by
reference to Exhibit 10(gg) to AMR's report on Form 10-K for
the year ended December 31, 1989.
10.11 Directors Stock Incentive Plan dated May 18, 1994, as amended,
incorporated by reference to Exhibit 10.9 to AMR's report on
Form 10-K for the year ended December 31, 1996.
10.12 Deferred Compensation Agreement, dated as of June 1, 1998,
between AMR and Edward A. Brennan, incorporated by reference
to Exhibit 10.15 to AMR's report on Form 10-K for the year
ended December 31, 1998.
10.13 Deferred Compensation Agreement, dated as of January 11, 2000,
between AMR and Edward A. Brennan, incorporated by reference
to Exhibit 10.15(a) to AMR's report on Form 10-K for the year
ended December 31, 1999.
10.14 Changes to the Deferred Compensation Agreement, dated as of
June 2, 1998, between AMR and Edward A. Brennan.
10.15 Deferred Compensation Agreement, dated as of February 7, 1996,
between AMR and Armando M. Codina, incorporated by reference
to Exhibit 10(ttt) to AMR's report on Form 10-K for the year
ended December 31, 1995.
10.16 Deferred Compensation Agreement, dated as of February 10,
1997, between AMR and Armando M. Codina, incorporated by
reference to Exhibit 10.13 to AMR's report on Form 10-K for
the year ended December 31, 1996.
10.17 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Armando M. Codina, incorporated by
reference to Exhibit 10.15 to AMR's report on Form 10-K for
the year ended December 31, 1997.
10.18 Deferred Compensation Agreement, dated as of January 13, 1999,
between AMR and Armando M. Codina, incorporated by reference
to Exhibit 10.19 to AMR's report on Form 10-K for the year
ended December 31, 1998.
10.19 Deferred Compensation Agreement, dated as of January 12, 2000,
between AMR and Armando M. Codina, incorporated by reference
to Exhibit 10.20 to AMR's report on Form 10-K for the year
ended December 31, 1999.
10.20 Deferred Compensation Agreement, dated as of January 22, 2001,
between AMR and Armando M. Codina.
10.21 Deferred Compensation Agreement, dated as of July 16, 1997,
between AMR and Judith Rodin, incorporated by reference to
Exhibit 10.22 to AMR's report on Form 10-K for the year ended
December 31, 1997.
</TABLE>
61
<PAGE> 63
<TABLE>
<S> <C>
10.22 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Judith Rodin, incorporated by reference
to Exhibit 10.23 to AMR's report on Form 10-K for the year
ended December 31, 1997.
10.23 Deferred Compensation Agreement, dated as of January 7, 1999,
between AMR and Judith Rodin, incorporated by reference to
Exhibit 10.30 to AMR's report on Form 10-K for the year ended
December 31, 1998.
10.24 Deferred Compensation Agreement, dated as of January 12, 2000,
between AMR and Judith Rodin, incorporated by reference to
Exhibit 10.29 to AMR's report on Form 10-K for the year ended
December 31, 1999.
10.25 Deferred Compensation Agreement, dated as of January 22, 2001,
between AMR and Judith Rodin.
10.26 Deferred Compensation Agreement, dated as of January 19, 2001,
between AMR and Philip J. Purcell.
10.27 Description of American's Split Dollar Insurance Program,
dated December 28, 1977, incorporated by reference to Exhibit
10(c)(1) to American's Registration Statement No. 2-76709.
10.28 AMR Corporation 1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10(t) to AMR's report on Form 10-K for
the year ended December 31, 1988.
10.29 Amendment to AMR's 1988 Long-term Incentive Plan dated May 18,
1994, incorporated by reference to Exhibit A to AMR's
definitive proxy statement with respect to the annual meeting
of stockholders held on May 18, 1994.
10.30 AMR Corporation 1998 Long-Term Incentive Plan, as amended,
incorporated by reference to Exhibit 10.34 to AMR's report on
Form 10-K for the year ended December 31, 1998.
10.31 Form of Stock Option Agreement for Corporate Officers under
the AMR 1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10(rr) to AMR's report on Form 10-K for
the year ended December 31, 1990.
10.32 Current form of Stock Option Agreement under the AMR 1988
Long-Term Incentive Plan, incorporated by reference to Exhibit
10.28 to AMR's report on Form 10-K for the year ended December
31, 1997.
10.33 Current form of Stock Option Agreement under the AMR 1998
Long-Term Incentive Plan, incorporated by reference to Exhibit
10.37 to AMR's report on Form 10-K for the year ended December
31, 1998.
10.34 Current form of Stock Option Agreement under the AMR 1998
Long-Term Incentive Plan, incorporated by reference to Exhibit
10.37 to AMR's report on Form 10-K for the year ended December
31, 1999.
10.35 Current form of Stock Option Agreement under the AMR 1998
Long-Term Incentive Plan.
10.36 Form of Career Equity Program Agreement, incorporated by
reference to Exhibit 10(nnn) to AMR's report on Form 10-K for
the year ended December 31, 1994.
10.37 Current Form of Career Equity Program Deferred Stock Award
Agreement for Corporate Officers under the AMR 1988 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.30 to
AMR's report on Form 10-K for the year ended December 31,
1997.
</TABLE>
62
<PAGE> 64
<TABLE>
<S> <C>
10.38 Current form of Career Equity Program Deferred Stock Award
Agreement for non-officers under the AMR 1988 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.31 to
AMR's report on Form 10-K for the year ended December 31,
1997.
10.39 Current Form of Career Equity Program Deferred Stock Award
Agreement for Corporate Officers under the AMR 1998 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.41 to
AMR's report on Form 10-K for the year ended December 31,
1998.
10.40 Current form of Career Equity Program Deferred Stock Award
Agreement for non-officers under the AMR 1998 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.42 to
AMR's report on Form 10-K for the year ended December 31,
1998.
10.41 Current form of Career Equity Program Deferred Stock Award
Agreement for Senior Officers under the AMR 1998 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.42(a)
to AMR's report on Form 10-K for the year ended December 31,
1998.
10.42 Current form of Career Equity Program Deferred Stock Award
Agreement for Employees under the AMR 1998 Long-Term Incentive
Plan, incorporated by reference to Exhibit 10.44 to AMR's
report on Form 10-K for the year ended December 31, 1999.
10.43 Form of Guaranty to Career Equity Program under the AMR 1988
Long-Term Incentive Plan, incorporated by reference to Exhibit
10(ccc) to AMR's report on Form 10-K for the year ended
December 31, 1993.
10.44 Performance Share Program for the years 1994 to 1996 under the
1988 Long-Term Incentive Program, incorporated by reference to
Exhibit 10(lll) to AMR's report on Form 10-K for the year
ended December 31, 1994.
10.45 Performance Share Program for the years 1995 to 1997 under the
1988 Long-Term Incentive Program, incorporated by reference to
Exhibit 10(ooo) to AMR's report on Form 10-K for the year
ended December 31, 1995.
10.46 Performance Share Program for the years 1996 to 1998 under the
1988 Long-Term Incentive Program, incorporated by reference to
Exhibit 10.26 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.47 Performance Share Program for the years 1997 to 1999 under the
1988 Long-Term Incentive Program, incorporated by reference to
Exhibit 10.27 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.48 Form of Performance Share Program for the years 1997 to 1999
under the 1988 Long-Term Incentive Program, incorporated by
reference to Exhibit 10.37 to AMR's report on Form 10-K for
the year ended December 31, 1997.
10.49 Performance Share Program for the years 1998 to 2000 under the
1988 Long-Term Incentive Program, incorporated by reference to
Exhibit 10.38 to AMR's report on Form 10-K for the year ended
December 31, 1997.
10.50 Performance Share Program for the years 1999 to 2001 under the
1998 Long-Term Incentive Program, incorporated by reference to
Exhibit 10.50 to AMR's report on Form 10-K for the year ended
December 31, 1998.
10.51 Performance Share Program for the years 2000 to 2002 under the
1998 Long-Term Incentive Program, incorporated by reference to
Exhibit 10.53 to AMR's report on Form 10-K for the year ended
December 31, 1999.
</TABLE>
63
<PAGE> 65
<TABLE>
<S> <C>
10.52 Performance Share Program for the years 2001 to 2003 under the
1998 Long-Term Incentive Program.
10.53 Form of Performance Share Program for the years 2001 to 2003
under the 1998 Long-Term Incentive Program.
10.54 American Airlines, Inc. Supplemental Executive Retirement
Program, as amended January 1997, incorporated by reference to
Exhibit 10.28 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.55 AMR Corporation 1987 Executive Deferral Plan, as amended
through 1999, incorporated by reference to Exhibit 10.52 to
AMR's report on Form 10-K for the year ended December 31,
1998.
10.56 American Airlines, Inc. 1996 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.29 to AMR's report on
Form 10-K for the year ended December 31, 1996.
10.57 American Airlines, Inc. 1997 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.30 to AMR's report on
Form 10-K for the year ended December 31, 1996.
10.58 American Airlines, Inc. 1998 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.43 to AMR's report on
Form 10-K for the year ended December 31, 1997.
10.59 American Airlines, Inc. 1999 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.56 to AMR's report on
Form 10-K for the year ended December 31, 1998.
10.59(a) American Airlines, Inc. 2000 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.60 to AMR's report on
Form 10-K for the year ended December 31, 1999.
10.60 American Airlines, Inc. 2001 Employee Profit Sharing Plan.
10.61 American Airlines, Inc. 1996 Incentive Compensation Plan for
Officers and Key Employees, incorporated by reference to
Exhibit 10(qqq) to AMR's report on Form 10-K for the year
ended December 31, 1995.
10.62 American Airlines, Inc. 1997 Incentive Compensation Plan for
Officers and Key Employees, incorporated by reference to
Exhibit 10.32 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.63 American Airlines, Inc. 1998 Incentive Compensation Plan for
Officers and Key Employees, incorporated by reference to
Exhibit 10.46 to AMR's report on Form 10-K for the year ended
December 31, 1997.
10.64 American Airlines, Inc. 1999 Incentive Compensation Plan for
Officers and Key Employees, incorporated by reference to
Exhibit 10.60 to AMR's report on Form 10-K for the year ended
December 31, 1998.
10.65 American Airlines, Inc. 2000 Incentive Compensation Plan for
Officers and Key Employees, incorporated by reference to
Exhibit 10.65 to AMR's report on Form 10-K for the year ended
December 31, 1999.
10.66 American Airlines, Inc. 2001 Incentive Compensation Plan for
Officers and Key Employees.
10.67 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Gerard J. Arpey, dated May
21, 1998, incorporated by reference to Exhibit 10.61 to AMR's
report on Form 10-K for the year ended December 31, 1998.
</TABLE>
64
<PAGE> 66
<TABLE>
<S> <C>
10.68 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Robert W. Baker, dated May
21, 1998, incorporated by reference to Exhibit 10.62 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.69 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Peter M. Bowler, dated May
21, 1998, incorporated by reference to Exhibit 10.63 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.70 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Donald J. Carty, dated May
21, 1998, incorporated by reference to Exhibit 10.64 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.71 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Peter J. Dolara, dated May
21, 1998, incorporated by reference to Exhibit 10.65 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.72 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Daniel P. Garton, dated May
21, 1998, incorporated by reference to Exhibit 10.66 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.73 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Michael W. Gunn, dated May
21, 1998, incorporated by reference to Exhibit 10.67 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.74 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Monte E. Ford, dated
November 15, 2000.
10.75 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Thomas W. Horton, dated
January 19, 2000, incorporated by reference to Exhibit 10.73
to AMR's report on Form 10-K for the year ended December 31,
1999.
10.76 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Henry C. Joyner, dated
January 19, 2000, incorporated by reference to Exhibit 10.74
to AMR's report on Form 10-K for the year ended December 31,
1999.
10.77 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Thomas J. Kiernan, dated
May 21, 1998, incorporated by reference to Exhibit 10.68 to
AMR's report on Form 10-K for the year ended December 31,
1998.
10.78 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and David L. Kruse, dated May
21, 1998, incorporated by reference to Exhibit 10.69 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.79 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Charles D. MarLett, dated
May 21, 1998, incorporated by reference to Exhibit 10.70 to
AMR's report on Form 10-K for the year ended December 31,
1998.
10.80 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Anne H. McNamara, dated May
21, 1998, incorporated by reference to Exhibit 10.71 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.81 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Susan M. Oliver, dated
September 22, 2000.
</TABLE>
65
<PAGE> 67
<TABLE>
<S> <C>
10.82 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and William K. Ris, Jr., dated
October 20, 1999, incorporated by reference to Exhibit 10.79
to AMR's report on Form 10-K for the year ended December 31,
1999.
10.83 Aircraft Sales Agreement by and between American Airlines,
Inc. and Federal Express Corporation, dated April 7, 1995,
incorporated by reference to Exhibit 10(rrr) to AMR's report
on Form 10-K for the year ended December 31, 1995.
Confidential treatment was granted as to a portion of this
document.
10.84 Aircraft Purchase Agreement by and between American Airlines,
Inc. and The Boeing Company, dated October 31, 1997,
incorporated by reference to Exhibit 10.48 to AMR's report on
Form 10-K for the year ended December 31, 1997. Confidential
treatment was granted as to a portion of this document.
10.85 Aircraft Purchase Agreement by and between AMR Eagle Holding
Corporation and Bombardier Inc., dated January 31, 1998,
incorporated by reference to Exhibit 10.49 to AMR's report on
Form 10-K for the year ended December 31, 1997. Confidential
treatment was granted as to a portion of this document.
10.86 Aircraft Purchase Agreement by and between AMR Eagle, Inc. and
Embraer-Empresa Brasileira de Aeronautica S.A., dated December
22, 1997, incorporated by reference to Exhibit 10.50 to AMR's
report on Form 10-K for the year ended December 31, 1997.
Confidential treatment was granted as to a portion of this
document.
10.87 Aircraft Purchase Agreement by and between AMR Eagle Holding
Corporation and Embraer-Empresa Brasileira de Aeronautica
S.A., dated September 30, 1998, incorporated by reference to
Exhibit 10.76 to AMR's report on Form 10-K for the year ended
December 31, 1998. Confidential treatment was granted as to a
portion of this document.
10.88 Amended and Restated Asset Purchase Agreement, dated as of
February 28, 2001, by and between American Airlines, Inc.
and Trans World Airlines, Inc.
10.89 Amendment No. 1 to Amended and Restated Asset Purchase
Agreement, dated as of March 9, 2001, by and between American
Airlines, Inc. and Trans World Airlines, Inc.
10.90 Secured Debtor In Possession Credit and Security Agreement
dated as of January 10, 2001 among Trans World Airlines, Inc.
and AMR Finance, Inc.
10.91 Letter Agreement/Amendment to Secured Debtor In Possession
Credit and Security Agreement dated as of January 11, 2001
between Trans World Airlines, Inc. and AMR Finance, Inc.
10.92 Letter Agreement/Amendment to Secured Debtor In Possession
Credit and Security Agreement dated as of January 26, 2001
between Trans World Airlines, Inc. and AMR Finance, Inc.
10.93 Letter Agreement/Amendment to Secured Debtor In Possession
Credit and Security Agreement dated as of March 7, 2001
between Trans World Airlines, Inc. and AMR Finance, Inc.
10.94 First Amendment to Secured Debtor In Possession Credit and
Security Agreement dated as of March 12, 2001 between Trans
World Airlines, Inc. and AMR Finance, Inc.
</TABLE>
66
<PAGE> 68
<TABLE>
<S> <C>
12 Computation of ratio of earnings to fixed charges for the
years ended December 31, 1996, 1997, 1998, 1999 and 2000.
21 Significant subsidiaries of the registrant as of December 31,
2000.
23 Consent of Independent Auditors.
</TABLE>
(b) Reports on Form 8-K:
Form 8-Ks filed under Item 5 - Other Events
On October 19, 2000, AMR filed a report on Form 8-K relative to a press
release issued to report the Company's third quarter 2000 earnings, information
relating to American's hosting of its biennial Analyst & Investor Conference,
the future dates of AMR's earnings report, and information on how to access
AMR's web site.
On November 1, 2000, AMR filed a report on Form 8-K relative to certain
data regarding its fleet plan, unit costs, capacity, traffic and fuel.
Form 8-Ks furnished under Item 9 - Regulation FD Disclosure
On November 10, 2000, AMR filed a report on Form 8-K relative to an
upcoming presentation by AMR's Chairman and CEO Don Carty as part of the 15th
Annual Salomon Smith Barney Transportation Conference in New York City.
On November 27, 2000, AMR filed a report on Form 8-K relative to certain
data regarding its fleet plan, unit costs, capacity, traffic and fuel.
On December 14, 2000, AMR filed a report on Form 8-K relative to certain
data regarding its fleet plan, unit costs, capacity, operational considerations,
traffic and fuel.
67
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMR CORPORATION
/s/ Donald J. Carty
- -------------------------------------------------
Donald J. Carty
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Thomas W. Horton
- -------------------------------------------------
Thomas W. Horton
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 22, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates noted:
Directors:
/s/ David L. Boren /s/ Michael A. Miles
- ----------------------------- ----------------------------
David L. Boren Michael A. Miles
/s/ Edward A. Brennan /s/ Charles H. Pistor, Jr.
- ----------------------------- ----------------------------
Edward A. Brennan Charles H. Pistor, Jr.
/s/ Armando M. Codina /s/ Philip J. Purcell
- ----------------------------- ----------------------------
Armando M. Codina Philip J. Purcell
/s/ Earl G. Graves /s/ Joe M. Rodgers
- ----------------------------- ----------------------------
Earl G. Graves Joe M. Rodgers
/s/ Ann McLaughlin Korologos /s/ Judith Rodin
- ----------------------------- ----------------------------
Ann McLaughlin Korologos Judith Rodin
Date: March 22, 2001
68
<PAGE> 70
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the consolidated financial statements of AMR Corporation as of
December 31, 2000 and 1999, and for each of the three years in the period ended
December 31, 2000, and have issued our report thereon dated January 16, 2001,
except for Note 15, for which the date is March 19, 2001. Our audits also
included Schedule II - Valuation and Qualifying Accounts and Reserves. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this schedule based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 16, 2001, except for Note 15,
for which the date is March 19, 2001.
69
<PAGE> 71
AMR CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
INCREASES SALES,
BALANCE CHARGED TO RETIRE- BALANCE
AT INCOME WRITE-OFFS MENTS AT
BEGINNING STATEMENT (NET OF AND END OF
OF YEAR ACCOUNTS PAYMENTS RECOVERIES) TRANSFERS YEAR
--------- -------- -------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 2000
Allowance for
obsolescence of inventories $279 $ 62 $ -- $ -- $ (9) $332
Allowance for
uncollectible accounts 57 18 -- (48) -- 27
Reserves for maintenance activities 38 52 (55) -- -- 35
Reserves for environmental
remediation costs 65 24 (19) -- -- 70
Reserves for litigation 31 -- (2) -- -- 29
YEAR ENDED DECEMBER 31, 1999
Allowance for
obsolescence of inventories 214 59 -- -- 6 279
Allowance for
uncollectible accounts 19 34 -- 4 -- 57
Reserves for maintenance activities 31 50 (43) -- -- 38
Reserves for environmental
remediation costs 23 48 (6) -- -- 65
Reserves for litigation -- 39 (8) -- -- 31
YEAR ENDED DECEMBER 31, 1998
Allowance for
obsolescence of inventories 203 40 -- -- (29) 214
Allowance for
uncollectible accounts 9 12 -- (2) -- 19
Reserves for maintenance activities 35 3 (4) -- (3) 31
Reserves for environmental
remediation costs 14 12 (3) -- -- 23
</TABLE>
70
<PAGE> 72
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.14 Changes to the Deferred Compensation Agreement, dated as of
June 2, 1998, between AMR and Edward A. Brennan.
10.20 Deferred Compensation Agreement, dated as of January 22, 2001,
between AMR and Armando M. Codina.
10.25 Deferred Compensation Agreement, dated as of January 22, 2001,
between AMR and Judith Rodin.
10.26 Deferred Compensation Agreement, dated as of January 19, 2001,
between AMR and Philip J. Purcell.
10.35 Current form of Stock Option Agreement under the AMR 1998
Long-Term Incentive Plan.
10.52 Performance Share Program for the years 2001 to 2003 under the
1998 Long-Term Incentive Program.
10.53 Form of Performance Share Program for the years 2001 to 2003
under the 1998 Long-Term Incentive Program.
10.60 American Airlines, Inc. 2001 Employee Profit Sharing Plan.
10.66 American Airlines, Inc. 2001 Incentive Compensation Plan for
Officers and Key Employees.
10.74 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Monte E. Ford, dated
November 15, 2000.
10.81 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Susan M. Oliver, dated
September 22, 2000.
10.88 Asset Purchase Agreement, dated as of February 28, 2001, by
and between American Airlines, Inc. and Trans World Airlines,
Inc.
10.89 Amendment No. 1 to Amended and Restated Asset Purchase
Agreement, dated as of March 9, 2001, by and between American
Airlines, Inc. and Trans World Airlines, Inc.
10.90 Secured Debtor In Possession Credit and Security Agreement
dated as of January 10, 2001 among Trans World Airlines, Inc.
and AMR Finance, Inc.
10.91 Letter Agreement/Amendment to Secured Debtor In Possession
Credit and Security Agreement dated as of January 11, 2001
between Trans World Airlines, Inc. and AMR Finance, Inc.
10.92 Letter Agreement/Amendment to Secured Debtor In Possession
Credit and Security Agreement dated as of January 26, 2001
between Trans World Airlines, Inc. and AMR Finance, Inc.
10.93 Letter Agreement/Amendment to Secured Debtor In Possession
Credit and Security Agreement dated as of March 7, 2001
between Trans World Airlines, Inc. and AMR Finance, Inc.
10.94 First Amendment to Secured Debtor In Possession Credit and
Security Agreement dated as of March 12, 2001 between Trans
World Airlines, Inc. and AMR Finance, Inc.
12 Computation of ratio of earnings to fixed charges for the
years ended December 31, 1996, 1997, 1998, 1999 and 2000.
21 Significant subsidiaries of the registrant as of December 31,
2000.
23 Consent of Independent Auditors.
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>2
<FILENAME>d84957ex10-14.txt
<DESCRIPTION>CHANGES TO DEFERRED COMPENSATION AGREEMENT 6/2/98
<TEXT>
<PAGE> 1
EXHIBIT 10.14
June 2, 1998
Mr. Edward A. Brennan
400 North Michigan Avenue
Suite 400
Chicago, IL 60611
Dear Ed:
This letter will confirm the changes we discussed to your deferral
arrangement.
1. You will continue to defer, pursuant to the Directors' Stock
Equivalent Purchase Plan (the "Plan"), all cash compensation paid to
you as a consequence of your service on the Board of Directors of AMR
Corporation and/or American Airlines, Inc. You may discontinue this
deferral at any time upon written notice to AMR.
2. The Deferral Termination Date (see Article 1.04 of the Plan) will be
the first to occur of: (i) your retirement from the Board or (ii) your
departure from the Board for reasons other than retirement.
3. Please indicate below whether you want the payment to be (i) a
lump-sum payment or (ii) made in installments. If you choose a
lump-sum payment, the first and final distribution will be made in
accordance with Article 4.01(B).
If you choose an installment payment, the distribution will be made in
accordance with Articles 4.01(B) and (C).
I ELECT DISTRIBUTION TO BE MADE AS FOLLOWS [INDICATE A LUMP-SUM
PAYMENT OR INSTALLMENT OVER "X" YEARS]: _____________________________.
4. In the event of your death prior to a full distribution of the Stock
Equivalent Units, the distribution will be made in accordance with
Article 4.01(E) in favor of Lois L. Brennan.
<PAGE> 2
Please indicate your agreement to the foregoing by signing below. This
letter will replace in its entirety that dated January 31, 1990. Capitalized
terms will have the meanings set forth in the Plan, a copy of which is attached
hereto.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Agreed:
- -----------------------------------
Edward A. Brennan
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>3
<FILENAME>d84957ex10-20.txt
<DESCRIPTION>DEFERRED COMPENSATION AGREEMENT - 1/22/2001
<TEXT>
<PAGE> 1
EXHIBIT 10.20
January 22, 2001
Mr. Armando M. Codina
Chairman
Codina Group, Inc.
Two Alhambra Plaza, PH2
Coral Gables, FL 33134
Dear Armando:
This will confirm the following agreement relating to the deferral of, and
payment of, your directors' fees in 2001:
1. All directors' fees and retainers (AFees@) payable to you in connection
with your service on the boards of directors (including committees of such
boards) of AMR Corporation and American Airlines, Inc. for the period January 1,
2001, through December 31, 2001, will be deferred and paid to you in accordance
with this letter agreement.
2. Fees will be converted to Stock Equivalent Units in accordance with the
Directors' Stock Equivalent Purchase Plan, a copy of which is attached hereto as
Exhibit A (the "Plan").
3. On or before January 31, 2010, all the Stock Equivalent Units will be
converted to cash and paid to you by multiplying the number of Stock Equivalent
Units as of December 31, 2009, by the arithmetic mean of the high and low of AMR
stock ("fair market value") during December 2009.
4. AMR's obligation to make payments pursuant to paragraph 3 hereof will
not be released or modified by reason of your death. In such event, the number
of Stock Equivalent Units as of your date of death will be multiplied by the
fair market value of AMR stock during the calendar month immediately preceding
your death, and the amount paid to Margarita Codina.
<PAGE> 2
If the foregoing is satisfactory to you, please indicate by signing one of
the originals (two are enclosed) and returning it to me.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
Armando M. Codina
Date
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.25
<SEQUENCE>4
<FILENAME>d84957ex10-25.txt
<DESCRIPTION>DEFERRED COMPENSATION AGREEMENT - 01/22/2001
<TEXT>
<PAGE> 1
EXHIBIT 10.25
January 22, 2001
Judith Rodin, PhD.
President
University of Pennsylvania
100 College Hall
Philadelphia, PA 19104
Dear Judith:
This will confirm the following agreement relating to the deferral of your
directors' fees and retainers in 2001:
1. All directors' fees and retainers (AFees@) payable to you in connection
with your service on the boards of directors (including committees of such
boards) of AMR Corporation and American Airlines, Inc. for the period January 1,
2001 through December 31, 2001, will be deferred and paid to you in accordance
with this letter agreement:
2. Fees will be converted to Stock Equivalent Units in accordance with the
Directors' Stock Equivalent Purchase Plan, a copy of which is attached hereto as
Exhibit A (the "Plan").
3. Upon your retirement from the Board of Directors of AMR the Stock
Equivalent Units accrued pursuant to the Plan will be converted to cash and paid
to you by multiplying the number of Stock Equivalent Units as of the date of
your retirement by the arithmetic mean of the high and low of AMR stock ("fair
market value") during the calendar month immediately preceding such retirement
date. Such payment will occur within 30 days of your retirement date.
4. AMR's obligation to make payments pursuant to paragraph 3 hereof will
not be released or modified by reason of your death. In such event, the number
of Stock Equivalent Units as of your date of death will be multiplied by the
fair market value of AMR stock during the calendar month immediately preceding
your death, and the amount paid to the Trustees under your Revocable Agreement
of Trust, dated September 15, 1997, as amended November 3, 1997, Judith Rodin
Settlor and Trustee.
<PAGE> 2
If the foregoing is satisfactory to you, please indicate by signing one of
the originals (two are enclosed) and returning it to me.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
Judith Rodin
Date
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>5
<FILENAME>d84957ex10-26.txt
<DESCRIPTION>DEFERRED COMPENSATION AGREEMENT - 1/19/2001
<TEXT>
<PAGE> 1
EXHIBIT 10.26
January 19, 2001
Mr. Philip J. Purcell
Morgan Stanley Dean Witter & Co.
2500 Lake Cook Road
Riverwoods, IL 60015
Dear Mr. Purcell:
This will confirm the following agreement relating to the deferral of your
director's fees in 2001.
1. All director's fees and retainers ("Fees") payable to you in connection
with your service on the boards of directors (including committees of such
boards) of AMR Corporation and American Airlines, Inc. for the period January 1,
2001 through December 31, 2001, will be deferred and paid to you in accordance
with this letter agreement.
2. Fees will be converted to Stock Equivalent Units in accordance with the
Directors' Stock Equivalent Purchase Plan, a copy of which is attached hereto as
Exhibit A (the "Plan").
3. Within 30 days of the date when you cease to be a Director of AMR
Corporation, the Stock Equivalent Units accrued pursuant to the Plan will be
converted to cash and paid to you by multiplying the number of such Stock
Equivalent Units by the arithmetic mean of the high and the low of AMR stock
("fair market value") during the month when you ceased to be a Director of AMR
Corporation.
4. AMR's obligation to make the payment pursuant to paragraph 3 hereof will
not be released or modified by reason of your death. In such event, the number
of Stock Equivalent Units as of your date of death will be multiplied by the
fair market value of AMR stock during the calendar month immediately preceding
your death, and the amount paid to Anne Purcell.
<PAGE> 2
If the foregoing is satisfactory to you, please indicate by signing one of
the originals (two are enclosed) and returning it to me.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
Philip J. Purcell
Date
2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.35
<SEQUENCE>6
<FILENAME>d84957ex10-35.txt
<DESCRIPTION>CURRENT FORM OF STOCK OPTION AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 10.35
STOCK OPTION
STOCK OPTION granted DATE, by AMR Corporation, a Delaware corporation
(the "Corporation"), and FIRST LAST, employee number 999999, an employee of the
Corporation or one of its Subsidiaries or Affiliates (the "Optionee").
WITNESSETH:
WHEREAS, the stockholders of the Corporation approved the 1998 Long
Term Incentive Plan at the Corporation's annual meeting held on May 20, 1998
(such plan, as may be amended from time to time, to be referenced the "1998
Plan");
WHEREAS, the 1998 Plan provides for the grant of an option to purchase
shares of the Corporation's Common Stock to those individuals selected by the
Committee or, in lieu thereof, the Board of Directors of AMR Corporation (the
"Board"); and
WHEREAS, the Board has determined that the Optionee is eligible under
the Plan and that it is to the advantage and interest of the Corporation to
grant the option provided for herein to the Optionee as an incentive for
Optionee to remain in the employ of the Corporation or one of its Subsidiaries
or Affiliates, and to encourage ownership by the Optionee of the Corporation's
Common Stock, $1 par value (the "Common Stock").
NOW, THEREFORE:
1. Option Grant. The Corporation hereby grants to the Optionee a
non-qualified stock option, subject to the terms and conditions hereinafter set
forth, to purchase all or any part of an aggregate of SHARES shares of Common
Stock at a price of $32.8438 per share (being the fair market value of the
Common Stock on the date hereof), exercisable in approximately equal
installments on and after the following dates and with respect to the following
number of shares of Common Stock:
<TABLE>
<CAPTION>
Exercisable On and After Number of Shares
------------------------ ----------------
<S> <C>
SHARES1 11/07/2001
------- ----------
SHARES2 11/07/2002
------- ----------
SHARES3 11/07/2003
------- ----------
SHARES4 11/07/2004
------- ----------
SHARES5 11/07/2005
------- ----------
</TABLE>
<PAGE> 2
provided, that in no event shall this option be exercisable in whole or in part
ten years from the date hereof and that the Corporation shall in no event be
obligated to issue fractional shares. The right to exercise this option and to
purchase the number of shares comprising each such installment shall be
cumulative, and once such right has become exercisable it may be exercised in
whole at any time and in part from time to time until the date of termination of
the Optionee's rights hereunder.
2. Restriction on Exercise. Notwithstanding any other provision hereof,
this option shall not be exercised if at such time such exercise or the delivery
of certificates representing shares of Common Stock purchased pursuant hereto
shall constitute a violation of any provision of any applicable Federal or State
statute, rule or regulation, or any rule or regulation of any securities
exchange on which the Common Stock may be listed.
3. Manner of Exercise. This option may be exercised with respect to all
or any part of the shares of Common Stock then subject to such exercise by
written notice from the Optionee to the Corporation addressed to P.O. Box
619616, Dallas/Fort Worth Airport, Texas 75261-9616, Attention: Executive
Compensation. Such notice shall be accompanied (i) by the payment of the option
price in cash or by check or (ii) by whatever other form of payment may be
authorized by the Corporation, and, in the event that at the time of such
exercise the shares of Common Stock as to which this option is exercisable have
not been registered under the Securities Act of 1933, shall include a
representation by the Optionee that at the time of such exercise he is acquiring
the shares of Common Stock for investment only and not with a view to
distribution. Subject to compliance by the Optionee with all the terms and
conditions hereof, the Corporation shall promptly thereafter deliver to the
Optionee a certificate or certificates for such shares with all requisite
transfer stamps attached.
4. Termination of Option. This option shall terminate and may no longer
be exercised if (i) the Optionee ceases to be an employee of the Corporation or
one of its Subsidiaries or Affiliates; or (ii) the Optionee becomes an employee
of a Subsidiary that is not wholly owned, directly or indirectly, by the
Corporation; or (iii) the Optionee takes a leave of absence without
reinstatement rights, unless otherwise agreed in writing between the Corporation
and the Optionee; except that
(a) If the Optionee's employment by the Corporation (and any Subsidiary
or Affiliate) terminates by reason of death, the vesting of the option will be
accelerated and the option will remain exercisable until its expiration;
2
<PAGE> 3
(b) If the Optionee's employment by the Corporation (and any Subsidiary
or Affiliate) terminates by reason of Disability, the option will continue to
vest in accordance with its terms and may be exercised until its expiration;
provided, however, that if the Optionee dies after such Disability the vesting
of the option will be accelerated and the option will remain exercisable until
its expiration;
(c) If the Optionee's employment by the Corporation (and any Subsidiary
or Affiliate) terminates by reason of Normal or Early Retirement, the option
will continue to vest in accordance with its terms and may be exercised until
its expiration; provided, however, that if the Optionee dies after Retirement
the vesting of the option will be accelerated and the option will remain
exercisable until its expiration;
(d) If the Optionee's employment by the Corporation (and any Subsidiary
or Affiliate) is involuntarily terminated by the Corporation or a Subsidiary or
Affiliate (as the case may be) without Cause, the option may thereafter be
exercised, to the extent it was exercisable at the time of termination, for a
period of three months from the date of such termination of employment or until
the stated term of such option, whichever period is shorter; and
(e) In the event of a Change in Control or a Potential Change in
Control of the Corporation, this option shall become exercisable in accordance
with the 1998 Plan, or its successor.
5. Adjustments in Common Stock. In the event of any stock dividend,
stock split, merger, consolidation, reorganization, recapitalization or other
change in the corporate structure, appropriate adjustments may be made by the
Board in the number of shares, class or classes of securities and the price per
share.
6. Non-Transferability of Option. Unless the Committee shall permit (on
such terms and conditions as it shall establish), an option may not be
transferred except by will or the laws of descent and distribution to the extent
provided herein. During the lifetime of the Optionee this option may be
exercised only by him or her (unless otherwise determined by the Committee).
7. Miscellaneous.
(a) This option (i) shall be binding upon and inure to the benefit of
any successor of the Corporation, (ii) shall be governed by the laws of the
State of Texas, and any applicable laws of the United States, and (iii) may not
be amended except in writing. No contract or right of employment shall be
implied by this option.
3
<PAGE> 4
(b) If this option is assumed or a new option is substituted therefore
in any corporate reorganization (including, but not limited to, any transaction
of the type referred to in Section 425(a) of the Internal Revenue Code of 1986,
as amended), employment by such assuming or substituting corporation or by a
parent corporation or a subsidiary thereof shall be considered for all purposes
of this option to be employment by the Corporation.
(c) In the event the Optionee's employment is terminated by reason of
Early or Normal Retirement and the Optionee subsequently is employed by a
competitor of the Corporation, the Corporation reserves the right, upon notice
to the Optionee, to declare the option forfeited and of no further validity.
8. Securities Law Requirements. The Corporation shall not be required
to issue shares upon the exercise of this option unless and until (a) such
shares have been duly listed upon each stock exchange on which the Corporation's
Stock is then registered; and (b) a registration statement under the Securities
Act of 1933 with respect to such shares is then effective.
The Board may require the Optionee to furnish to the Corporation, prior
to the issuance of any shares of Stock in connection with the exercise of this
option, an agreement, in such form as the Board may from time to time deem
appropriate, in which the Optionee represents that the shares acquired by him
upon such exercise are being acquired for investment and not with a view to the
sale or distribution thereof.
9. Option Subject to 1998 Plan. This option shall be subject to all the
terms and provisions of the 1998 Plan and the Optionee shall abide by and be
bound by all rules, regulations and determinations of the Board now or hereafter
made in connection with the administration of the 1998 Plan. Capitalized terms
not otherwise defined herein shall have the meanings set forth for such terms in
the 1998 Plan.
IN WITNESS WHEREOF, the Corporation has executed this Stock Option as
of the day and year first above written.
AMR Corporation
- ------------------------------ ----------------------------
Optionee Charles D. MarLett
Corporate Secretary
4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.52
<SEQUENCE>7
<FILENAME>d84957ex10-52.txt
<DESCRIPTION>PERFORMANCE SHARE PROGRAM
<TEXT>
<PAGE> 1
EXHIBIT 10.52
2001 - 2003 PERFORMANCE SHARE PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 2001 - 2003 AMR Corporation Performance Share Plan ("Plan")
for Officers and Key Employees is to provide greater incentive to officers and
key employees of the subsidiaries and affiliates of AMR Corporation ("AMR" or
"the Corporation") to achieve the highest level of individual performance and to
meet or exceed specified goals which will contribute to the success of the
Corporation. This Plan is adopted pursuant to the 1998 Long Term Incentive Plan,
as amended ("LTIP").
Definitions
Capitalized terms not otherwise defined in the Plan or the award agreement for
performance shares between the Corporation and the employee, will have the
meanings set forth in the LTIP.
For purposes of the Plan, the following definitions will control:
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Committee as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
"Committee" is defined as the Compensation / Nominating Committee of the AMR
Board of Directors.
"Comparator Group" is defined as the seven major U.S. based carriers including
AMR Corporation, Continental Airlines, Inc., Delta Air Lines, Inc., Northwest
Airlines Corp., Southwest Airlines Co., UAL Corporation, and US Airways Group,
Inc.
"Measurement Period" is defined as the three year period beginning January 1,
2001 and ending December 31, 2003.
"Total Shareholder Return (TSR)" is defined as the annualized rate of return
reflecting stock price appreciation plus reinvestment of dividends over the
Measurement Period. The average Daily Closing Stock Price (adjusted for splits
and dividends) for the three months prior to the beginning and ending points of
the Measurement Period will be used to smooth out market fluctuations. The
Committee reserves the right to adjust the calculation at its discretion.
"Daily Closing Stock Price" is defined as the stock price at the close of
trading (4:00 PM EST) of the National Exchange on which the stock is traded.
<PAGE> 2
"National Exchange" is defined as either the New York Stock Exchange (NYSE), the
National Association of Stock Dealers and Quotes (NASDAQ), or the American Stock
Exchange (AMEX).
Accumulation of Shares
The number of shares under the Plan to be distributed to individual participants
is determined by (i) the Corporation's TSR rank within the Comparator Group and
(ii) the terms and conditions of the award agreement between the Corporation and
the employee. The distribution percentage of target shares, based on rank, is
specified below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Granted Shares - Percent of Target Based on Rank
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rank 7 6 5 4 3 2 1
- ------------------------------------------------------------------------------
Payout % 0% 25% 50% 75% 100% 135% 175%
- ------------------------------------------------------------------------------
</TABLE>
In the event that a carrier (or carriers) in the Comparator Group ceases to
trade on a National Exchange at any point in the Measurement Period, the
following distribution percentage of target shares, based on rank and the number
of remaining comparators, will be used accordingly.
6 Comparators
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Granted Shares - Percent of Target Based on Rank
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rank 6 5 4 3 2 1
- -------------------------------------------------------------------
Payout % 0% 50% 75% 100% 135% 175%
- -------------------------------------------------------------------
</TABLE>
5 Comparators
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Granted Shares - Percent of Target Based on Rank
- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rank 5 4 3 2 1
- ---------------------------------------------------------
Payout % 50% 75% 100% 135% 175%
- ---------------------------------------------------------
</TABLE>
4 Comparators
<TABLE>
<CAPTION>
- ------------------------------------------------
Granted Shares - Percent of Target Based on Rank
- ------------------------------------------------
<S> <C> <C> <C> <C>
Rank 4 3 2 1
- ------------------------------------------------
Payout % 75% 100% 135% 175%
- ------------------------------------------------
</TABLE>
2
<PAGE> 3
3 Comparators
<TABLE>
<CAPTION>
- ------------------------------------------------
Granted Shares - Percent of Target Based on Rank
- ------------------------------------------------
<S> <C> <C> <C>
Rank 3 2 1
- ------------------------------------------------
Payout % 100% 135% 175%
- ------------------------------------------------
</TABLE>
Administration
The Committee shall have authority to administer and interpret the Plan,
establish administrative rules, approve eligible participants, and take any
other action necessary for the proper and efficient operation of the Plan. The
distribution percentage of shares, if any, will be determined based on an audit
of AMR's TSR Rank by the General Auditor of American Airlines, Inc. A summary of
awards under the Plan shall be provided to the Board of Directors at the first
regular meeting following determination of the awards. The Committee may
determine to pay a cash equivalent in lieu of the stock award.
General
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or participant the right to be retained in the employ of American
Airlines, Inc. or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive an award as may have been expressly
awarded by the Committee subject to the terms and conditions of the award
agreement between the Corporation and the employee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of the
Corporation, whether similar or dissimilar, (each a "Force Majeure Event"),
which Force Majeure Event affects the Corporation or its subsidiaries or its
Affiliates, the Committee, in its sole discretion, may (i) terminate or (ii)
suspend, delay, defer (for such period of time as the Committee may deem
necessary), or substitute any awards due currently or in the future under the
Plan, including, but not limited to, any awards that have accrued to the benefit
of participants but have not yet been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American Airlines, Inc. or its
Affiliates to any unauthorized party and, (ii) not to make any unauthorized use
of such trade secrets or confidential or restricted information during his or
her employment with American Airlines, Inc. or its Affiliates or
3
<PAGE> 4
after such employment is terminated, and (iii) not to solicit any current
employees of American Airlines, Inc. or any subsidiaries of AMR to join the
employee at his or her new place of employment after his or her employment with
American Airlines, Inc. is terminated.
The Committee may amend, suspend, or terminate the Plan at any time.
4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.53
<SEQUENCE>8
<FILENAME>d84957ex10-53.txt
<DESCRIPTION>FORM OF PERFORMANCE SHARE PROGRAM
<TEXT>
<PAGE> 1
EXHIBIT 10.53
2000 - 2002 PERFORMANCE SHARE PROGRAM
DEFERRED STOCK AWARD AGREEMENT
This AGREEMENT made as of DATE, by and between AMR Corporation, a
Delaware corporation (the "Corporation"), and FIRST LAST (the "Employee"),
employee number 999999.
WHEREAS, the stockholders of the Corporation approved the 1998 Long
Term Incentive Plan at the Corporation's annual meeting held on May 20, 1998
(such plan, as may be amended from time to time, to be referenced the "1998
Plan"); and
WHEREAS, pursuant to the Performance Share Program (the "Program")
adopted by the Board of Directors of the Corporation (the "Board"), the Board
has determined to make a Program grant to the Employee of Deferred Stock
(subject to the terms of the 1998 Plan and this Agreement), as an inducement for
the Employee to remain an employee of the Corporation (or a Subsidiary or
Affiliate thereof), and to retain and motivate such Employee during such
employment.
NOW, THEREFORE, the Corporation and the Employee hereby agree as
follows:
1. Grant of Award. The Employee is hereby granted as of DATE, (the
"Grant Date") a Deferred Stock Award (the "Award"), subject to the terms and
conditions hereinafter set forth, with respect to SHARES shares of Common Stock,
$1.00 par value, of the Corporation ("Stock"). The shares of Stock covered by
the Award shall vest, if at all, in accordance with Section 2.
2. Vesting.
(a) The Award will vest, if at all, in accordance with Schedule A,
attached hereto and made a part of this Agreement.
(b) In the event of the termination of Employee's employment with the
Corporation (or a Subsidiary or Affiliate thereof) prior to the end of three
year measurement period set forth in Schedule A (the "Measurement Period") due
to the Employee's death, Disability, Retirement or termination not for Cause
(each an "Early Termination") the Award will vest, if at all, on a prorata basis
and will be paid to the Employee (or, in the event of the Employee's death, the
Employee's designated beneficiary for purposes of the Award, or in the absence
of an effective beneficiary designation, the Employee's estate) as soon as
practicable after the end of the Measurement Period. The prorata share will be a
percentage where the denominator is
1
<PAGE> 2
36 and the numerator is the number of months from January 1, 2000 through the
month of the Early Termination, inclusive.
(c) In the event of the termination of Employee's employment with the
Corporation (or any Subsidiary or Affiliate thereof) for Cause, or if the
Employee terminates his/her employment with the Corporation (or any Subsidiary
or Affiliate thereof) prior to the distribution of any Award hereunder, the
Award shall be forfeited in its entirety.
(d) In the event of a Change in Control or Potential Change in Control
of the Corporation, the Award shall vest in accordance with the 1998 Plan, or
its successor.
(e) If prior to the distribution of any Award hereunder, the Employee
becomes an employee of a Subsidiary that is not wholly owned, directly or
indirectly, by the Corporation, then the Award shall be forfeited in its
entirety.
(f) If prior to the distribution of any Award hereunder, the Employee
takes a leave of absence without reinstatement rights, and unless otherwise
agreed in writing between the Corporation and the Employee, then the Award shall
be forfeited in its entirety.
3. Payment in Cash. Upon a determination by the Board, an Award may be
paid in cash or other consideration in accordance with a formula as adopted by
the Board.
4. Elective Deferrals. At any time at least 12 months prior to the end
of the Measurement Period, the Employee may elect in writing, subject to
approval by the Corporation, to voluntarily defer the receipt of the Stock for a
specified additional period beyond the end of the Measurement Period (the
"Elective Deferral Period"). Any Stock deferred pursuant to this Section 4 shall
be issued to the Employee within 60 days after the end of the Elective Deferral
Period. In the event of the death of the Employee during the Elective Deferral
Period, the Stock so deferred shall be issued to the Employee's designated
Beneficiary (or to the Employee's estate, in the absence of an effective
beneficiary designation) within 60 days after the Corporation receives written
notification of death.
5. Transfer Restrictions. This Award is non-transferable otherwise than
by will or by the laws of descent and distribution, and may not otherwise be
assigned, pledged or hypothecated and shall not be subject to execution,
attachment or similar process. Upon any attempt by the Employee (or the
Employee's successor in interest after the Employee's death) to effect any such
disposition, or upon the levy of any such process, the Award may immediately
become null and void, at the discretion of the Board.
2
<PAGE> 3
6. Miscellaneous. This Agreement (a) shall be binding upon and inure to
the benefit of any successor of the Corporation, (b) shall be governed by the
laws of the State of Texas and any applicable laws of the United States, and (c)
may not be amended without the written consent of both the Corporation and the
Employee. No contract or right of employment shall be implied by this Agreement.
In the event Employee does not forward to the Corporation, within the applicable
period, required taxes with respect to any Award distributed pursuant to this
Agreement, the Corporation may withhold from any payments to be made to the
Employee by the Corporation (or any Subsidiary or Affiliate thereof), an
amount(s) equal to such taxes.
7. Securities Law Requirements. The Corporation shall not be required
to issue Stock pursuant to this Award unless and until (a) such shares have been
duly listed upon each stock exchange on which the Corporation's Stock is then
registered and (b) a registration statement under the Securities Act of 1933
with respect to such shares is then effective.
The Board may require the Employee to furnish to the Corporation, prior
to the issuance of the Stock in connection with this Award, an agreement, in
such form as the Board may from time to time deem appropriate, in which the
Employee represents that the shares acquired under the Award are being acquired
for investment and not with a view to the sale or distribution thereof.
8. Incorporation of 1998 Plan Provisions. This Agreement is made
pursuant to the 1998 Plan and is subject to all of the terms and provisions of
the 1998 Plan as if the same were fully set forth herein. Capitalized terms not
otherwise defined herein (inclusive of Schedule A) shall have the meanings set
forth for such terms in the 1998 Plan.
IN WITNESS HEREOF, the Employee and the Corporation have executed this
Performance Share Grant as of the day and year first above written.
EMPLOYEE AMR CORPORATION
- ----------------------------- ---------------------
Charles D. MarLett
Corporate Secretary
3
<PAGE> 4
Schedule A
AMR CORPORATION
2000 - 2002 PERFORMANCE SHARE PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 2000 - 2002 AMR Corporation Performance Share Plan ("Plan")
for Officers and Key Employees is to provide greater incentive to officers and
key employees of the subsidiaries and affiliates of AMR Corporation ("AMR" or
"the Corporation") to achieve the highest level of individual performance and to
meet or exceed specified goals which will contribute to the success of the
Corporation. This Plan is adopted pursuant to the 1998 Long Term Incentive Plan,
as amended ("LTIP").
Definitions
Capitalized terms not otherwise defined in the Plan or the award agreement for
performance shares between the Corporation and the employee, will have the
meanings set forth in the LTIP.
For purposes of the Plan, the following definitions will control:
"Adjusted Investment" is defined as the sum of AMR's consolidated notes
payable, current maturities of long-term debt and capital leases, long-term
debt, capital leases, Present Value of Operating Leases, and stockholders'
equity, and any extraordinary or unusual items which may be added or deducted at
the discretion of the Committee.
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Committee as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
"American" is defined as AMR less AMR subsidiaries other than American Airlines,
Inc.
"Average Adjusted Investment" is defined as the sum of Adjusted Investment as of
December 31 of a given year during the measurement period, plus Adjusted
Investment as of the December 31 of the prior fiscal year, divided by two.
"Calculated Amortization of Operating Leases" is defined as the amortization
expense associated with the Capitalized Value of Operating Leases as if such
leases were
4
<PAGE> 5
accounted for as capital leases, and is determined by the straight line method
over the lease term.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"Committee" is defined as the Compensation / Nominating Committee of the AMR
Board of Directors.
"Measurement Period" is defined as the three year period beginning January 1,
2000 and ending December 31, 2002.
"Adjusted Earnings" is defined as the sum of AMR's pre-tax income, interest
expense, aircraft rental expense, less Calculated Amortization of Operating
Leases and any accounting adjustments or extraordinary or unusual items which
may be added or deducted at the discretion of the Committee.
"Average Plan Earnings" is defined as the sum of Adjusted Earnings for each of
the years during the measurement period, divided by three.
"Plan Average Adjusted Investment" is defined as the sum of Average Adjusted
Investment for each of the years during the measurement period, divided by
three.
"Present Value of Operating Leases" is defined as the present value of the lease
payments required under aircraft operating leases over the remaining lease term,
calculated using the discount rate used in the determination of the Capitalized
Value of Operating Leases.
"Prime" is defined as the base rate on corporate loans posted by at least 75% of
the 30 largest U.S. banks which is published daily in the Wall Street Journal.
"Return on Investment" or "ROI" is defined as Average Plan Earnings divided by
Plan Average Adjusted Investment, stated as a percentage.
"Sabre" is defined as Sabre Holdings Corporation and its subsidiaries.
For purposes of determining ROI, the assets, liabilities, shareholder equity and
earnings of Sabre are to be excluded.
Unless otherwise indicated, the sources for all of the financial data specified
above are the applicable Annual Reports on Form 10-K filed by the Corporation.
5
<PAGE> 6
Accumulation of Shares
The number of shares under the Plan to be distributed to individual
participants is determined by (i) the Corporation's ROI (ii), the Corporation's
pre-tax income, and (iii) the terms and conditions of the award agreement
between the Corporation and the employee. The distribution percentage of shares
is specified below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
GRANTED SHARES - PERCENT OF TARGET
AMR'S ROI
- -----------------------------------------------------------------------------------------------------------------
> OR = TO 5.5% > OR = TO 7.5% > OR = TO 9.5% > OR = TO 11.5% > OR = TO 13.5% > OR = TO
< 5.5% AND < 7.5% AND < 9.5% AND < 11.5% AND < 13.5% AND < 15.5% 15.5%
- -------- -------------- -------------- -------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
0% 50% 75% 100% 125% 150% 175%
</TABLE>
SUBJECT TO ANY ADJUSTMENTS MADE BY THE COMMITTEE TO ADJUSTED INVESTMENT OR
ADJUSTED EARNINGS, NO SHARES WILL BE DISTRIBUTED IF THE CORPORATION'S CUMULATIVE
PRE-TAX INCOME DURING THE MEASUREMENT PERIOD IS LESS THAN, OR EQUAL TO, $0.
Administration
The Committee shall have authority to administer and interpret the Plan,
establish administrative rules, approve eligible participants, and take any
other action necessary for the proper operation of the Plan. The distribution
percentage of shares, if any, should be determined based on certification of
AMR's ROI by AMR's independent auditors. A summary of awards under the Plan
shall be provided to the Board of Directors at the first regular meeting
following determination of the awards. The Committee may determine to pay a cash
equivalent in lieu of the stock award.
General
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or participant the right to be retained in the employ of American
or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive an award as may have been expressly
awarded by the Committee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of the
Corporation, whether similar or dissimilar, (each a "Force Majeure Event"),
which Force Majeure Event affects the Corporation or its
6
<PAGE> 7
subsidiaries or its Affiliates, the Committee, at its sole discretion, may (i)
terminate or (ii) suspend, delay, defer (for such period of time as the Board
may deem necessary), or substitute any awards due currently or in the future
under the Plan, including, but not limited to, any awards that have accrued to
the benefit of participants but have not yet been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party and,
(ii) not to make any unauthorized use of such trade secrets or confidential or
restricted information during his or her employment with American or after such
employment is terminated, and (iii) not to solicit any current employees of
American or any subsidiaries of AMR to join the employee at his or her new place
of employment after his or her employment with American is terminated.
The Committee may amend, suspend, or terminate the Plan at any time.
7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.60
<SEQUENCE>9
<FILENAME>d84957ex10-60.txt
<DESCRIPTION>2001 EMPLOYEE PROFIT SHARING PLAN
<TEXT>
<PAGE> 1
EXHIBIT 10.60
2001 EMPLOYEE PROFIT SHARING PLAN
Purpose
The purpose of the 2001 American Airlines Employee Profit Sharing Plan ("Plan")
is to provide participating employees with a sense of commitment to, and direct
financial interest in, the success of American Airlines, Inc.
Definitions
Capitalized terms not otherwise defined in the Plan will have the meanings set
forth in the 1998 Long Term Incentive Plan, as amended (the "LTIP").
"AMR" is defined as AMR Corporation.
"Adjusted Investment" is defined as the sum of American's notes payable, current
maturities of long-term debt and capital leases, long-term debt, capital leases,
Present Value of Operating Leases, and stockholders' equity, and any accounting
adjustments or extraordinary or unusual items which may be added or deducted at
the discretion of the Committee and are approved by the Board of Directors of
AMR. In the event of the AMR acquisition of TWA, Adjusted Investment will be
reduced by the net of AMR goodwill generated by the transaction, plus assets
attributable to TWA, plus net losses attributable to TWA, less assumed
liabilities attributable to TWA.
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Committee as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
"American" is defined as AMR less AMR subsidiaries other than American Airlines,
Inc. and its subsidiaries. Subsidiaries of American Airlines, Inc. and AMR
created for the TWA acquisition and transition will be excluded from the
definition of American.
"Average Adjusted Investment" is defined as the sum of Adjusted Investment as of
12/31/00, 3/31/01, 6/30/01, and 9/30/01, divided by four.
"Calculated Amortization of Operating Leases" is defined as the amortization
expense associated with the Capitalized Value of Operating Leases as if such
leases were accounted for as capital leases, and is determined by the
straight-line method over the lease term.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
<PAGE> 2
"Committee" is defined as the AMR Incentive Compensation Committee.
"Fund" is defined as the profit sharing fund, if any, accumulated in accordance
with this Plan.
"Plan Earnings" is defined as the sum of American's pre-tax income, interest
expense, aircraft rental expense, and any accruals for American's Pilot Variable
Compensation Plan, Employee Profit Sharing Plan, Incentive Compensation Plan,
and any other plan that might be created, at the discretion of the Committee,
less Calculated Amortization of Operating Leases and any accounting adjustments
or extraordinary or unusual items which may be added or deducted at the
discretion of the Committee and approved by the Board of Directors of AMR.
"Present Value of Operating Leases" is defined as the present value of the lease
payments required under American's aircraft operating leases over the remaining
lease term, calculated using the discount rate of Prime plus one percent.
Amounts for 3/31/01, 6/30/01, and 9/30/01 are computed by determining the
difference between the Present Value of Operating Leases as of 12/31/01 and
12/31/00 and allocating that difference evenly over the four quarters of 2001.
"Prime" is defined as the base rate on corporate loans posted by at least 75% of
the 30 largest U.S. banks which is published daily in the Wall Street Journal.
"Qualified Earnings" is defined as base pay through December 31 of the Plan
year, overtime, holiday pay, skill premiums, longevity pay, sick pay, vacation
pay, shift differential, overrides and license premiums and does not include
payments such as travel and incidental expenses, moving expenses, relocation
allowance (COLA), payouts from any retirement plan, disability payments, workers
compensation payments, imputed income from certain travel service charges or
life insurance, or other benefits provided by American, nor does it include any
special one-time monetary awards or allowances such as IdeAAs in Action
payments, lump sum payments, or incentive compensation or profit sharing
payments.
"Return on Investment" or "ROI" is defined as Plan Earnings divided by Average
Adjusted Investment, stated as a percentage.
Eligibility for Participation
In order to be eligible for a profit sharing award, the individual must:
o Have worked during the Plan year as a regular full-time or part-time
employee at American in a participating workgroup (flight attendant,
reservations, coordinator/planner, airport agent, sky cap, support staff,
management levels 04 and below).
2
<PAGE> 3
o Have an adjusted seniority date prior to July 1st of the Plan year. An
individual's Qualified Earnings from the time worked at American will be
included in the award calculation.
o Be employed at American or an Affiliate at the time awards are paid. If at
the time awards are paid under the Plan, an individual has retired from
American or an Affiliate, has been laid off, is on a leave of absence with
re-instatement rights, is disabled or has died, the award which the
individual otherwise would have received under the Plan but for such
retirement, lay-off, leave, disability or death may be paid to the
individual or his/her estate in the event of death, at the discretion of
the Committee.
Notwithstanding the foregoing, however, an employee will not be eligible to
participate in the Plan if such employee is, at the same time, eligible to
participate in:
i) the 2001 American Airlines Incentive Compensation Plan for Officers
and Key Employees,
ii) the Pilot Profit Sharing Plan (as implemented in 1997),
iii) any incentive compensation, profit sharing, commission or other
bonus plan for employees of any division of American, or
iv) any incentive compensation, profit sharing, commission or other bonus
plan sponsored by an Affiliate.
Awards under the Plan will be determined on a proportionate basis for
participation in more than one plan during a Plan year. Employees who transfer
from/to Affiliates or any other plan described above during a Plan year, and
satisfy eligibility requirements, will receive awards from each plan on a
proportionate basis.
The Profit Sharing Fund Accumulation
Performance will be measured by ROI and the Fund will accumulate based on that
performance. The Fund is established at 1% of Qualified Earnings when ROI is
equal to 6.4%. The fund will accumulate on a straight-line basis at the rate of
0.583% of qualified earnings for each additional point of ROI.
The profit sharing fund will not exceed an amount equal to 8% of Qualified
Earnings at levels of ROI above 18.4%.
3
<PAGE> 4
Award Distribution
For eligible domestic employees (where domestic means the United States, Puerto
Rico and the U.S. Virgin Islands), individual awards will be distributed based
on an employee's Qualified Earnings for the Plan year multiplied by the
appropriate percentage of Qualified Earnings based upon the ROI achieved for the
Plan year. The percent of Qualified Earnings used for Fund accumulation and
award distribution will be the same.
A portion of the Fund will be allocated for eligible international employees
(employees other than those in the United States, Puerto Rico and the U.S.
Virgin Islands) based on the aggregate of all eligible international employees'
Qualified Earnings as a percentage of the aggregate of all eligible employees'
total Qualified Earnings. This portion of the Fund will be set aside for
distribution at the discretion of the American officer(s) responsible for such
international employees, subject only to the Committee's approval.
Administration
The Plan will be administered by the Committee which is comprised of officers of
American appointed by the Chairman of AMR. The Committee will have authority to
administer and interpret the Plan, establish administrative rules, determine
eligibility and take any other action necessary for the proper and efficient
operation of the Plan. The amount, if any, of the Fund shall be based on a
certification of ROI by AMR's independent auditors. A summary of awards under
the Plan shall be provided to the Board of Directors of AMR at the first regular
meeting following determination of the awards.
Method of Payment
The Committee shall determine the method of payment of awards. Subject to the
terms of the Plan, awards shall be paid as soon as practicable after audited
financial statements for the year 2001 are available. Individuals, except
retirees, may elect to defer their awards into the 401(k) plan, where
applicable, established by American.
General
Neither this Plan nor any action taken hereunder shall be construed as giving to
any employee or participant the right to be retained in the employ of American
or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to
4
<PAGE> 5
receive payment of such award as may have been expressly determined by the
Committee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of American,
whether similar or dissimilar, (each a "Force Majeure Event"), which Force
Majeure Event affects American or its Subsidiaries or its Affiliates, the
Committee, in its sole discretion, may (i) terminate or (ii) suspend, delay,
defer (for such period of time as the Committee may deem necessary), or
substitute any payments due currently or in the future under the Plan,
including, but not limited to, any payments that have accrued to the benefit of
participants but have not yet been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American or its Affiliates to any
unauthorized party and, (ii) not to make any unauthorized use of such trade
secrets or confidential or restricted information during his or her employment
with American or its Affiliates or after such employment is terminated, and
(iii) not to solicit any current employees of American or any subsidiaries of
AMR to join the employee at his or her new place of employment after his or her
employment with American or its Affiliates is terminated.
The Committee may amend, suspend, or terminate the Plan at any time.
5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.66
<SEQUENCE>10
<FILENAME>d84957ex10-66.txt
<DESCRIPTION>2001 INCENTIVE COMPENSATION PLAN
<TEXT>
<PAGE> 1
EXHIBIT 10.66
2001 INCENTIVE COMPENSATION PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 2001 American Airlines Incentive Compensation Plan ("Plan")
for officers and key employees is to provide greater incentive to officers and
key employees of American Airlines, Inc. to achieve the highest level of
individual performance and to meet or exceed specified goals which will
contribute to the success of American.
Definitions
Capitalized terms not otherwise defined in the Plan will have the meanings set
forth in the 1998 Long Term Incentive Plan, as amended (the "LTIP").
"AMR" is defined as AMR Corporation.
"Aggregate Target Awards" is defined as the arithmetic sum of the Target Awards
for all Plan participants.
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Committee as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
"American" is defined as AMR less AMR subsidiaries other than American Airlines,
Inc. and its subsidiaries. Subsidiaries of American Airlines, Inc. and AMR
created for the TWA acquisition and transition will be excluded from the
definition of American.
"Committee" is defined as the Compensation/Nominating Committee of the AMR Board
of Directors.
"Competitors" is defined as Continental Airlines, Delta Airlines, Northwest
Airlines, United Airlines and US Airways.
"DOT Rank" is defined as American's relative rank with respect to its
Competitors in the category of arrivals+14 (A+14) as determined by the U.S.
Department of Transportation (DOT). This cumulative ranking is based on DOT's
aggregated A+14 data for the period December 1, 2000 through November 30, 2001,
inclusive. To the extent that at any point during the year a carrier ceases to
participate, they will be excluded from the entire year.
<PAGE> 2
"Engagement Scores" is defined as American's overall engagement score on the
employee opinion survey and American's rating versus the National Norm, each
reported as a percent annually.
"Fund" is defined as the incentive compensation fund, if any, accumulated in
accordance with this Plan.
"Leadership Score" is defined as American's average score on the overall
leadership dimension of the 360(degrees) multi-rater survey reported for level
5's and above annually.
"Measure" is defined as Net Income, DOT Rank, Survey America Rank, Engagement
Score, or the Leadership Score.
"Named Executive Officers" is defined as the officers of American who are named
in the AMR proxy statement for the year in which awards under the Plan are paid.
"National Norm" is defined as a weighted representative sample of the largest
U.S. industrial (Fortune 500) and service sector corporations.
"Net Income" is AMR net income including any accounting adjustments or
extraordinary or unusual items which may be added or deducted by the Committee.
Net Income of subsidiaries of American Airlines, Inc. and AMR created for the
TWA acquisition and transition will be excluded from the calculation of Net
Income.
"Qualified Earnings" is defined as base pay as of December 31 of the Plan year,
holiday pay, sick pay, and vacation pay, and does not include such things as
travel and incidental expenses, moving expenses, relocation allowance (COLA),
payouts from any retirement plan, disability payments, workers compensation
payments, imputed income from certain travel service charges or life insurance,
or other benefits provided by American, nor does it include any special monetary
awards or allowances such as IdeAAs in Action payments, lump sum payments, or
incentive compensation or profit sharing payments.
"Survey America Rank" is defined as American's relative rank with respect to its
Competitors in the categories of "Retained Preference", "Overall Travel
Experience", "Overall Ground Service", and "Overall On-Board Services" in the
coach cabin as reported in Plog Inc.'s Survey America. The Survey America
ranking is based on cumulative data for American and its Competitors for the
period October 1, 2000 through September 30, 2001, inclusive. To the extent that
at any point during the year a carrier ceases to participate, they will be
excluded from the entire year.
"Target Award" is defined as the award (stated as a percentage of Qualified
Earnings) for an eligible participant when Target levels are achieved on all
Measures. The Target Award is determined by the participant's job level.
2
<PAGE> 3
Eligibility for Participation
In order to be eligible to participate in the Plan, an individual must be an
officer or key employee (as designated by American's Chairman and CEO) of
American. Additionally, the individual must have been employed by American or an
Affiliate as an officer or key employee for at least three consecutive months
during the Plan year. The three months service requirement may be waived in
cases of retirement in accordance with American's then applicable pension plan,
prior to completing three months of service.
During a Plan year, individuals with less than twelve months eligibility in the
Plan may be eligible to participate in the Plan on a pro rata basis, at the
discretion of the Committee. In addition, the Committee, at its discretion, may
permit participation by officers and key employees of Affiliates who have been
so employed by the Affiliate for at least three consecutive months during the
Plan year.
Notwithstanding the forgoing, however, an officer or key employee will not be
eligible to participate in the Plan if such officer or key employee is, at the
same time, eligible to participate in a commission, incentive, profit sharing or
other bonus compensation program sponsored by American or an Affiliate, unless
the Committee otherwise decides.
In order to receive an award under the Plan, an individual must satisfy the
aforementioned eligibility requirements and must be an employee of American or
an Affiliate at the time an award under the Plan is paid. If at the time awards
are paid under the Plan, an individual has retired from American or an
Affiliate, is on leave of absence with reinstatement rights, is disabled, or has
died, the award which the individual otherwise would have received under the
Plan but for such retirement, leave, disability, or death may be paid to the
individual, or his/her estate in the event of death, at the discretion of the
Committee.
The Incentive Compensation Fund
The Fund is comprised of three Measures: financial, employee and customer. The
employee and customer measures have various components (see below). Each Measure
has a threshold (performance below this level earns no award), target and
maximum percentage of Aggregate Target Awards that may be earned, as follows:
<TABLE>
<CAPTION>
Component Threshold Target Maximum
--------- --------- ------ -------
<S> <C> <C> <C>
Financial 16.50% 66% 132%
Employee 8.50% 17% 34%
Customer 12.75% 17% 34%
Total 37.75% 100% 200%
</TABLE>
3
<PAGE> 4
For each Measure, the Fund will accumulate on a linear basis between each of the
points defined in the following tables.
Financial Measure:
The financial measure is based on Net Income. At a threshold Net Income of $155
million, the Fund will accumulate 16.50% of Aggregate Target Awards. Higher Net
Incomes will result in higher percentages of Aggregate Target Awards as follows:
<TABLE>
<CAPTION>
Net Income % of Target Awards Earned
---------- -------------------------
<S> <C>
$155 16.50%
$270 33.00%
$385 49.50%
$500 66.00%
$650 99.00%
$800 132.00%(Max)
</TABLE>
Employee Measures:
The employee measures will depend on Engagement Scores and Leadership Score.
<TABLE>
<CAPTION>
Threshold Target Maximum
--------- ------ -------
<S> <C> <C> <C>
Engagement Score 3.5% 7% 14%
Engagement versus National Norm 2.5% 5% 10%
Leadership Score 2.5% 5% 10%
---- -- ---
Total 8.5% 17% 34%
</TABLE>
At a threshold Engagement Score of 69%, the Fund will accumulate 3.5% of
Aggregate Target Awards. Higher scores will result in higher percentages of
Aggregate Target Awards, as follows:
<TABLE>
<CAPTION>
Engagement Score % of Target Awards Earned
---------------- -------------------------
<S> <C>
69% 3.50%
70% 4.38%
71% 5.25%
72% 7.00%
73% 10.50%
74% 14.00%(Max)
</TABLE>
At a threshold Engagement Score of 9% below National Norm, the Fund will
accumulate 2.5% of Aggregate Target Awards. Higher scores will result in higher
percentages of Aggregate Target Awards, as follows:
4
<PAGE> 5
<TABLE>
<CAPTION>
Percent below National Norm % of Target Awards Earned
--------------------------- -------------------------
<S> <C>
9% 2.50%
8% 3.75%
7% 5.00%
6% 7.50%
5% 10.00%(Max)
</TABLE>
At a threshold Leadership Score of 4.25, the Fund will accumulate 2.5% of
Aggregate Target Awards. Higher scores will result in higher percentages of
Aggregate Target Awards, as follows:
<TABLE>
<CAPTION>
Leadership Score % of Target Awards Earned
---------------- -------------------------
<S> <C>
4.25 2.50%
4.28 3.75%
4.31 5.00%
4.34 7.50%
4.37 10.00%(Max)
</TABLE>
Customer Measures:
Customer Measures will depend on DOT Rank and Survey America Rank. Each of the
five components (retained preference, overall travel experience, overall ground
service, overall on-board service and DOT A+14 rankings) is measured separately.
For each Measure, at a threshold rank of fourth, the fund will accumulate 2.55%
of Aggregate Target Awards. A higher rank will result in higher percentages of
Aggregate Target Awards, as follows:
<TABLE>
<CAPTION>
Rank % of Target Awards Earned
------- -------------------------
<S> <C>
Fourth 2.55%
Third 3.40%
Second 5.10%
First 6.80%(Max)
</TABLE>
5
<PAGE> 6
The following scorecard illustrates this.
2001 INCENTIVE PLAN SCORECARD
<TABLE>
<CAPTION>
THRESHOLD TARGET MAXIMUM EXAMPLE
MEASURES WEIGHT 25% 50% 75% 100% 150% 200% SCORE(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
- - AMR net income 66% $155M $270M $385M $500M $650M $800M 66.00%
Threshold Target Maximum Example
Weight 25% 50% 75% 100% 150% 200% Score
- ----------------------------------------------------------------------------------------------------------------------------
EMPLOYEE
- - engagement score on opinion survey 7% n/a 69% 71% 72% 73% 74% 3.50%
- - AA engagement vs. national norm 5% n/a 9% below 8% below 7% below 6% below 5% below 3.75%
- - leadership score on 360(degrees)
multi-rater survey 5% n/a 4.25 4.28 4.31 4.34 4.37 2.50%
-- ----
17% 9.75%
Threshold Target Maximum Example
Weight 25% 50% 75% 100% 150% 200% Score
- ----------------------------------------------------------------------------------------------------------------------------
CUSTOMER
- - retained preference 3.4% n/a n/a 4th 3rd 2nd 1st 3.40%
- - overall travel experience 3.4% n/a n/a 4th 3rd 2nd 1st 2.55%
- - overall ground service 3.4% n/a n/a 4th 3rd 2nd 1st 2.55%
- - overall on-board services 3.4% n/a n/a 4th 3rd 2nd 1st 5.10%
- - DOT A+14 ratings 3.4% n/a n/a 4th 3rd 2nd 1st 3.40%
--- -----
17% 17.00%
FUND AS A % OF TARGET 92.75%
</TABLE>
(1) Based on performance results in shaded areas
Allocation of Individual Awards
The Chairman and CEO of American, in consultation with the Vice-Chairman,
executive and senior vice presidents of American, will determine awards for
non-officer eligible employees based upon the eligible employee's performance.
An award under the Plan to a non-officer eligible employee, when combined with
any other award for the Plan year whether such other award is under an incentive
compensation, commission, profit sharing or other bonus compensation plan, may
not exceed 100% of such eligible employee's base salary.
The Committee, in consultation with the Chairman and CEO of American, will
determine awards for officers of American, including the Named Executive
Officers. The awards for officers (other than the Named Executive Officers) will
be equal to the appropriate Target Award, plus or minus any adjustments for
individual performance. To the extent that an award to a Named Executive Officer
includes a partial payment relating to a Measure (excluding Net Income), such
partial payment will be paid from the general
6
<PAGE> 7
operating funds of American. An award under the Plan to an officer may not
exceed the amount set forth in Section 11 of the LTIP.
The aggregate of all awards paid hereunder will not exceed the lesser of: (2.0
times the Fund at Target Net Income) or (50% of the total base salaries of all
eligible participants in the Plan). In the discretion of the Committee, the Fund
may not be fully distributed.
Administration
The Committee shall have authority to administer and interpret the Plan,
establish administrative rules, approve eligible participants, and take any
other action necessary for the proper and efficient operation of the Plan. The
Committee reserves the right to adjust the calculation of each Measure at its
discretion. Notwithstanding anything to the contrary contained herein, no awards
will be made under the Plan unless awards are also made under the 2001 American
Airlines Employee Profit Sharing Plan and the 2001 Pilot Variable Compensation
Plan for members of the Allied Pilots Association. The amount, if any, of the
Fund shall be audited by the General Auditor of American based on a
certification of Net Income by AMR's independent auditors. A summary of awards
under the Plan shall be provided to the Committee at the first regular meeting
following determination of the awards. To the extent a Measure is no longer
compiled by the DOT, Survey America, or American, as applicable, during a Plan
year, the Committee will substitute a comparable performance measure for the
remainder of the Plan year.
Method of Payment
The Committee will determine the method of payment of awards. Except as provided
herein, awards shall be paid as soon as practicable after audited financial
statements for the year 2001 are available. Individuals, except retirees, may
elect to defer their awards into a 401(k) plan, where applicable, established by
American or AMR or into a deferred compensation program, if any, administered by
American or AMR.
General
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or participant the right to be retained in the employ of American
or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive payment of such incentive
compensation as may have been expressly awarded by the Committee.
7
<PAGE> 8
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of American,
whether similar or dissimilar, (each a "Force Majeure Event"), which Force
Majeure Event affects American or its subsidiaries or its Affiliates, the
Committee in its sole discretion, may (i) terminate or (ii) suspend, delay,
defer (for such period of time as the Committee may deem necessary), or
substitute any payments due currently or in the future under the Plan,
including, but not limited to, any payments that have accrued to the benefit of
participants but have not yet been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American or its Affiliates to any
unauthorized party and (ii) not to make any unauthorized use of such trade
secrets or confidential or restricted information during his or her employment
with American or its Affiliates or after such employment is terminated, and
(iii) not to solicit any current employees of American or any subsidiaries of
AMR to join the employee at his or her new place of employment after his or her
employment with American or its Affiliates is terminated.
The Committee may amend, suspend, or terminate the Plan at any time.
8
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.74
<SEQUENCE>11
<FILENAME>d84957ex10-74.txt
<DESCRIPTION>AMEND/RESTATED TERMINATION AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 10.74
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 15th day of November, 2000 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and MONTE E. FORD (the "Executive").
WITNESSETH:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company through
a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his position, and
that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d) and
2
<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of securities
of the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the then outstanding shares of common stock of the
Company and the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors
immediately prior to such Business Combination
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beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries), (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the
Executive with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first 24
months after a Change in Control;
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(ii) by the Executive for "Good Reason" (as defined
in Section 2(b) below) at any time within the first 24 months
after a Change in Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to
Section 2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists or
has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the
Executive shall have been a director of the Company and/or a
subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and/or any subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in
the aggregate of the Executive's annual base salary rate and
annual incentive compensation target to be received from the
Company and/or any subsidiary, or (C) the termination or
denial of the Executive's rights to Employee Benefits (as
defined below) or a reduction in the
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scope or value thereof, any of which is not remedied by the
Company within 10 calendar days after receipt by the Company
of written notice from the Executive of such change, reduction
or termination, as the case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused the Executive to
suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the
position held by the Executive immediately prior to the Change
in Control, which situation is not remedied within 10 calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of
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law) assumed all duties and obligations of the Company under
this Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location that is in excess of
50 miles from the location thereof immediately prior to the
Change in Control, or requires the Executive to travel away
from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of Executive in any of the
three full years immediately prior to the Change in Control
without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the
Company or any successor thereto, which breach is not remedied
within 10 calendar days after written notice to the Company
from the Executive describing the nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits
shall be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with
the Company and its subsidiaries by reason of the Executive's
death or Disability, provided that the Executive has not
previously given a valid "Notice of Termination" pursuant to
Section 3. For purposes hereof, "Disability" shall be defined
as the inability of Executive due to illness, accident or
other physical or mental disability to perform his duties for
any period of six consecutive months or for any period of
eight
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months out of any 12-month period, as determined by an
independent physician selected by the Company and reasonably
acceptable to the Executive (or his legal representative),
provided that the Executive does not return to work on
substantially a full-time basis within 30 days after written
notice from the Company, pursuant to Section 3, of an intent
to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with
the Company and its subsidiaries on account of the Executive's
retirement at or after age 65, pursuant to the Company's
Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with
the Company and its subsidiaries for Cause. For the purposes
hereof, "Cause" shall be defined as a felony conviction of the
Executive or the failure of the Executive to contest
prosecution for a felony, or the Executive's wilful misconduct
or dishonesty, any of which is directly and materially harmful
to the business or reputation of the Company or any subsidiary
or affiliate. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three quarters of the Board
then in office at a meeting of the Board called and held for
such purpose, after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel (if
the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the
good faith opinion of the Board, the Executive had committed
an act constituting
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"Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or
propriety of any such determination.
This Section 2(c) shall not preclude the payment of any amounts
otherwise payable to the Executive under any of the Company's employee benefit
plans, stock plans, programs and arrangements and/or under any Employment
Agreement.
(d) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including
a termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in Control
for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
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<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination including, if applicable, the failure after
provision of written notice by the Executive to effect a remedy pursuant to the
final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of
(i) "Base Pay", which shall be an amount equal to the greater of (A) the
Executive's effective annual base salary at the Termination Date or (B) the
Executive's effective annual base salary immediately prior to the Change in
Control, plus (ii) "Incentive Pay" equal to the greater of (x) the target annual
bonus payable to the Executive under the Company's Incentive Compensation Plan
or any other annual bonus plan for the fiscal year of the Company in which the
Change in Control occurred or (y) the highest annual bonus earned by the
Executive under the Company's Incentive Compensation Plan or any other annual
bonus plan (whether paid currently or on a deferred basis) with respect to any
12 consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
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(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes. Employee
Benefits otherwise receivable by the Executive pursuant to this Section 4(b)
will be reduced to the extent comparable welfare benefits are actually received
by the Executive from another employer during the Continuation Period, and any
such benefits actually received by the Executive shall be reported by the
Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in
Executive's currently accrued benefits under the Company's Retirement Benefit
Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the
date of Change in Control (collectively, the
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"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including but
not limited to any applicable benefit limitations under the Employee Retirement
Income Security Act of 1974, as amended, or any restrictions relating to the
qualification of the Company's Retirement Benefit Plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) shall be paid
directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other
business or employment opportunities during the Continuation Period and requests
in writing that the Company provide relocation services, he will be reimbursed
for any expenses incurred in that initial relocation (including taxes payable on
the reimbursement) which are not reimbursed by another employer. Benefits under
this provision will include assistance in selling the Executive's home and all
other assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
(e) Executive Outplacement Counseling
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At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling service
of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the
extent they have not already become exercisable) shall become
exercisable as of the date on which the Change in Control
occurs, unless otherwise specifically provided at the time
such options are granted.
(ii) The Company's right to rescind any award of
stock to the Executive under the Company's 1988 Long Term
Incentive Plan or the Company's 1998 Long Term Incentive Plan
(or any successor plan) shall terminate upon a Change in
Control, and all restrictions on the sale, pledge,
hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination
Date, unless otherwise specifically provided at the time such
award(s) are made.
(iii) The Executive's rights under any other stock
based compensation plan shall vest (to the extent they have
not already vested) and any performance criteria shall be
deemed met at target as of the date on which a Change in
Control occurs, unless otherwise specifically provided at the
time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the
cost on the Termination Date of purchasing, at standard independent insurance
premium rates, an individual
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paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the date
of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges
provided by the Company to Directors as of the date of Change
in Control until the Executive reaches age 55, at which time
he shall have all flight privileges provided by the Company to
its retirees who held the same or similar position as the
Executive immediately prior to the Change in Control.
(ii) The Executive, at the Executive's option, shall
be entitled to continue the use of the Executive's
Company-provided automobile during the Continuation Period
under the same terms that applied to the automobile
immediately prior to the Change in Control, or to purchase the
automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an
amount equal to the cost to the Company of providing any other
perquisites and benefits of the Company in effect immediately
prior to the Change in Control, calculated as if such benefits
were continued during the Continuation Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts
accrued or earned by the Executive through the Termination Date and amounts
otherwise owing under the then existing plans and policies of the Company,
including but not limited to all amounts of compensation previously deferred by
the Executive (together with any accrued interest thereon) and not yet paid by
the Company, and any accrued vacation pay not yet paid by the Company.
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(j) The Company shall pay to the Executive the amounts due
pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first
business day of the month following the Termination Date. The Company shall pay
to the Executive the amounts due pursuant to Section 4(i) in accordance with the
terms and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 5(h), in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or
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penalties imposed with respect to such taxes), including any Excise Tax and any
income tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Change in Control
Date, the Termination Date, if applicable, and any such other time or times as
may be requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company shall
pay the required Gross-Up Payment to the Executive within five business days
after receipt of such determination and calculations with respect to any Payment
to the Executive. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
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event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
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Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment or
any additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration of
the 30-calendar-day period following the date on which he gives such notice to
the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without
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limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 5(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense)
and may, at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any
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Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the
contrary, if (i) but for this sentence, the Company would be obligated to make a
Gross-Up Payment to the Executive, (ii) the aggregate "present value" of the
"parachute payments" to be paid or provided
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to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this Agreement
(including any stock based compensation pursuant to Section 4(f)) will be
reduced to the minimum extent necessary (but in no event to less than zero) so
that no portion of any payment or benefit to the Executive, as so reduced,
constitutes an "excess parachute payment." For purposes of this Section 5(h),
the terms "excess parachute payment," "present value," "parachute payment," and
"base amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or benefits to
be provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to payments
or benefits may be reduced by reason of the limitations contained in this
Section 5(h) will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
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6. No Mitigation Obligation. The Company hereby acknowledges that it
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
any or all of the benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or
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<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to Section 7(a) hereof, in the event a Change in Control occurs, the performance
of the Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
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<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be disclosed
in the normal course of his employment with the Company or pursuant to any court
order or other legal process.
(b) The Executive hereby agrees that during the Continuation
Period, he will not directly or indirectly solicit any employee of the Company
or any of its subsidiaries or affiliated companies to join the employ of any
entity that competes with the Company or any of its subsidiaries or affiliated
companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company, with a copy to the General Counsel of the Company) at its principal
executive office and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
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<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall be
based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the laws
of descent or distribution, and in the event of any attempted assignment or
transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing as
of the date first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second anniversary of
the first occurrence of a Change in Control; provided, however, that (A)
commencing on the fifth anniversary of the date first above written and each
fifth anniversary date thereafter, the Term of this Agreement will automatically
be extended for an additional five years unless, not later than 180 days
preceding each such fifth anniversary date, the Company or the Executive shall
have given notice that it or the Executive, as the case may be, does not wish to
have the Term extended and (B) subject to Section 2(e), if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company
and any subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 15, the Executive shall not be deemed to
have ceased to be an employee of the Company and any subsidiary by reason of the
transfer of Executive's employment between the Company and any subsidiary, or
among any subsidiaries.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17. Prior Agreement. This Agreement supersedes and terminates any and
all prior Executive Termination Benefits Agreements by and among Company and the
Executive.
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<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
--------------------------
AMERICAN AIRLINES, INC.
By: /s/ Susan M. Oliver
--------------------------
EXECUTIVE
/s/ Monte E. Ford
------------------------------
29
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.81
<SEQUENCE>12
<FILENAME>d84957ex10-81.txt
<DESCRIPTION>AMEND/RESTATED EXECUTIVE TERMINATION AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 10.81
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 22nd day of September, 2000 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and SUSAN M. OLIVER (the "Executive").
WITNESSETH:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company through
a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his position, and
that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d) and
2
<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of securities
of the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the then outstanding shares of common stock of the
Company and the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors
immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries), (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the
Executive with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first 24
months after a Change in Control;
4
<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined
in Section 2(b) below) at any time within the first 24 months
after a Change in Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to
Section 2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists or
has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the
Executive shall have been a director of the Company and/or a
subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and/or any subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in
the aggregate of the Executive's annual base salary rate and
annual incentive compensation target to be received from the
Company and/or any subsidiary, or (C) the termination or
denial of the Executive's rights to Employee Benefits (as
defined below) or a reduction in
5
<PAGE> 6
the scope or value thereof, any of which is not remedied by
the Company within 10 calendar days after receipt by the
Company of written notice from the Executive of such change,
reduction or termination, as the case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused the Executive to
suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the
position held by the Executive immediately prior to the Change
in Control, which situation is not remedied within 10 calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of
6
<PAGE> 7
law) assumed all duties and obligations of the Company under
this Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location that is in excess of
50 miles from the location thereof immediately prior to the
Change in Control, or requires the Executive to travel away
from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of Executive in any of the
three full years immediately prior to the Change in Control
without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the
Company or any successor thereto, which breach is not remedied
within 10 calendar days after written notice to the Company
from the Executive describing the nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits
shall be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with
the Company and its subsidiaries by reason of the Executive's
death or Disability, provided that the Executive has not
previously given a valid "Notice of Termination" pursuant to
Section 3. For purposes hereof, "Disability" shall be defined
as the inability of Executive due to illness, accident or
other physical or mental disability to perform his duties for
any period of six consecutive months or for any period of
eight
7
<PAGE> 8
months out of any 12-month period, as determined by an
independent physician selected by the Company and reasonably
acceptable to the Executive (or his legal representative),
provided that the Executive does not return to work on
substantially a full-time basis within 30 days after written
notice from the Company, pursuant to Section 3, of an intent
to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with
the Company and its subsidiaries on account of the Executive's
retirement at or after age 65, pursuant to the Company's
Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with
the Company and its subsidiaries for Cause. For the purposes
hereof, "Cause" shall be defined as a felony conviction of the
Executive or the failure of the Executive to contest
prosecution for a felony, or the Executive's wilful misconduct
or dishonesty, any of which is directly and materially harmful
to the business or reputation of the Company or any subsidiary
or affiliate. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three quarters of the Board
then in office at a meeting of the Board called and held for
such purpose, after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel (if
the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the
good faith opinion of the Board, the Executive had committed
an act constituting
8
<PAGE> 9
"Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or
propriety of any such determination.
This Section 2(c) shall not preclude the payment of any amounts
otherwise payable to the Executive under any of the Company's employee benefit
plans, stock plans, programs and arrangements and/or under any Employment
Agreement.
(d) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including
a termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in Control
for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
9
<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination including, if applicable, the failure after
provision of written notice by the Executive to effect a remedy pursuant to the
final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of
(i) "Base Pay", which shall be an amount equal to the greater of (A) the
Executive's effective annual base salary at the Termination Date or (B) the
Executive's effective annual base salary immediately prior to the Change in
Control, plus (ii) "Incentive Pay" equal to the greater of (x) the target annual
bonus payable to the Executive under the Company's Incentive Compensation Plan
or any other annual bonus plan for the fiscal year of the Company in which the
Change in Control occurred or (y) the highest annual bonus earned by the
Executive under the Company's Incentive Compensation Plan or any other annual
bonus plan (whether paid currently or on a deferred basis) with respect to any
12 consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
10
<PAGE> 11
(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes. Employee
Benefits otherwise receivable by the Executive pursuant to this Section 4(b)
will be reduced to the extent comparable welfare benefits are actually received
by the Executive from another employer during the Continuation Period, and any
such benefits actually received by the Executive shall be reported by the
Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in
Executive's currently accrued benefits under the Company's Retirement Benefit
Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the
date of Change in Control (collectively, the
11
<PAGE> 12
"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including but
not limited to any applicable benefit limitations under the Employee Retirement
Income Security Act of 1974, as amended, or any restrictions relating to the
qualification of the Company's Retirement Benefit Plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) shall be paid
directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other
business or employment opportunities during the Continuation Period and requests
in writing that the Company provide relocation services, he will be reimbursed
for any expenses incurred in that initial relocation (including taxes payable on
the reimbursement) which are not reimbursed by another employer. Benefits under
this provision will include assistance in selling the Executive's home and all
other assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
(e) Executive Outplacement Counseling
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<PAGE> 13
At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling service
of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the
extent they have not already become exercisable) shall become
exercisable as of the date on which the Change in Control
occurs, unless otherwise specifically provided at the time
such options are granted.
(ii) The Company's right to rescind any award of
stock to the Executive under the Company's 1988 Long Term
Incentive Plan or the Company's 1998 Long Term Incentive Plan
(or any successor plan) shall terminate upon a Change in
Control, and all restrictions on the sale, pledge,
hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination
Date, unless otherwise specifically provided at the time such
award(s) are made.
(iii) The Executive's rights under any other stock
based compensation plan shall vest (to the extent they have
not already vested) and any performance criteria shall be
deemed met at target as of the date on which a Change in
Control occurs, unless otherwise specifically provided at the
time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the
cost on the Termination Date of purchasing, at standard independent insurance
premium rates, an individual
13
<PAGE> 14
paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the date
of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges
provided by the Company to Directors as of the date of Change
in Control until the Executive reaches age 55, at which time
he shall have all flight privileges provided by the Company to
its retirees who held the same or similar position as the
Executive immediately prior to the Change in Control.
(ii) The Executive, at the Executive's option, shall
be entitled to continue the use of the Executive's
Company-provided automobile during the Continuation Period
under the same terms that applied to the automobile
immediately prior to the Change in Control, or to purchase the
automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an
amount equal to the cost to the Company of providing any other
perquisites and benefits of the Company in effect immediately
prior to the Change in Control, calculated as if such benefits
were continued during the Continuation Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts
accrued or earned by the Executive through the Termination Date and amounts
otherwise owing under the then existing plans and policies of the Company,
including but not limited to all amounts of compensation previously deferred by
the Executive (together with any accrued interest thereon) and not yet paid by
the Company, and any accrued vacation pay not yet paid by the Company.
14
<PAGE> 15
(j) The Company shall pay to the Executive the amounts due
pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first
business day of the month following the Termination Date. The Company shall pay
to the Executive the amounts due pursuant to Section 4(i) in accordance with the
terms and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 5(h), in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or
15
<PAGE> 16
penalties imposed with respect to such taxes), including any Excise Tax and any
income tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Change in Control
Date, the Termination Date, if applicable, and any such other time or times as
may be requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company shall
pay the required Gross-Up Payment to the Executive within five business days
after receipt of such determination and calculations with respect to any Payment
to the Executive. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
16
<PAGE> 17
event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment or
any additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration of
the 30-calendar-day period following the date on which he gives such notice to
the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without
18
<PAGE> 19
limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 5(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense)
and may, at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the
contrary, if (i) but for this sentence, the Company would be obligated to make a
Gross-Up Payment to the Executive, (ii) the aggregate "present value" of the
"parachute payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this Agreement
(including any stock based compensation pursuant to Section 4(f)) will be
reduced to the minimum extent necessary (but in no event to less than zero) so
that no portion of any payment or benefit to the Executive, as so reduced,
constitutes an "excess parachute payment." For purposes of this Section 5(h),
the terms "excess parachute payment," "present value," "parachute payment," and
"base amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or benefits to
be provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to payments
or benefits may be reduced by reason of the limitations contained in this
Section 5(h) will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that it
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
any or all of the benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to Section 7(a) hereof, in the event a Change in Control occurs, the performance
of the Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be disclosed
in the normal course of his employment with the Company or pursuant to any court
order or other legal process.
(b) The Executive hereby agrees that during the Continuation
Period, he will not directly or indirectly solicit any employee of the Company
or any of its subsidiaries or affiliated companies to join the employ of any
entity that competes with the Company or any of its subsidiaries or affiliated
companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company, with a copy to the General Counsel of the Company) at its principal
executive office and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall be
based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the laws
of descent or distribution, and in the event of any attempted assignment or
transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing as
of the date first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second anniversary of
the first occurrence of a Change in Control; provided, however, that (A)
commencing on the fifth anniversary of the date first above written and each
fifth anniversary date thereafter, the Term of this Agreement will automatically
be extended for an additional five years unless, not later than 180 days
preceding each such fifth anniversary date, the Company or the Executive shall
have given notice that it or the Executive, as the case may be, does not wish to
have the Term extended and (B) subject to Section 2(e), if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company
and any subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 15, the Executive shall not be deemed to
have ceased to be an employee of the Company and any subsidiary by reason of the
transfer of Executive's employment between the Company and any subsidiary, or
among any subsidiaries.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17. Prior Agreement. This Agreement supersedes and terminates any and
all prior Executive Termination Benefits Agreements by and among Company and the
Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
------------------------
SUSAN M. OLIVER
/s/ Susan M. Oliver
----------------------------
29
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.88
<SEQUENCE>13
<FILENAME>d84957ex10-88.txt
<DESCRIPTION>ASSET PURCHASE AGREEMENT DATED FEBRUARY 28, 2001
<TEXT>
<PAGE> 1
EXHIBIT 10.88
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
between
AMERICAN AIRLINES, INC.,
as Purchaser,
and
TRANS WORLD AIRLINES, INC.,
as Seller
February 28, 2001
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS....................................................................1
1.1 Definitions...........................................................................1
1.2 Disclosure Schedules..................................................................1
ARTICLE II PURCHASE OF ASSETS.............................................................2
2.1 Purchase and Sale of Transferred Assets...............................................2
2.2 Excluded Assets.......................................................................2
ARTICLE III ASSUMPTION OF LIABILITIES......................................................2
3.1 Assumed Liabilities...................................................................2
3.2 Retained Liabilities..................................................................3
ARTICLE IV PURCHASE PRICE.................................................................5
4.1 Purchase Price........................................................................5
4.2 Allocation of Purchase Price..........................................................5
4.3 Working Capital Adjustment............................................................5
4.4 Other Adjustments to Purchase Price...................................................8
4.5 Prorations............................................................................9
4.6 Transfer Taxes........................................................................9
4.7 Offsets to Purchase Price............................................................10
4.8 Holdbacks to Purchase Price..........................................................10
ARTICLE V CLOSING.......................................................................10
5.1 Closing..............................................................................10
5.2 Deliveries at Closing................................................................10
5.3 Delivery of Transferred Assets.......................................................11
5.4 Conditions Precedent to Obligations of Purchaser.....................................12
5.5 Conditions Precedent to Obligations of TWA...........................................15
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF SELLERS.....................................16
6.1 Organization and Good Standing.......................................................16
6.2 Authorization and Effect of Agreement................................................16
6.3 No Conflicts.........................................................................17
6.4 No Third Party Options...............................................................17
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.5 Data.................................................................................18
6.6 Consents and Approvals...............................................................18
6.7 Permits; Compliance with Law.........................................................18
6.8 Litigation...........................................................................18
6.9 Title to and Condition of Assets.....................................................18
6.10 U.S. Citizen; Air Carrier............................................................19
6.11 Assumed Contracts....................................................................19
6.12 Aircraft; Engines and Spare Parts....................................................19
6.13 Slots................................................................................21
6.14 No Casualty..........................................................................22
6.15 Insurance............................................................................22
6.16 Gates; Gate Property and Ground Equipment............................................22
6.17 Environmental Matters................................................................23
6.18 Taxes................................................................................25
6.19 Labor Matters........................................................................26
6.20 Employee Matters.....................................................................27
6.21 Routes...............................................................................28
6.22 Intellectual Property................................................................28
6.23 Worldspan............................................................................29
6.24 Real Property........................................................................29
6.25 Disclosure...........................................................................31
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PURCHASER...................................31
7.1 Corporate Organization...............................................................31
7.2 Authorization and Effect of Agreement................................................31
7.3 No Conflicts.........................................................................31
7.4 Litigation...........................................................................32
ARTICLE VIII PRE-CLOSING COVENANTS.........................................................32
8.1 Access...............................................................................32
8.2 Conduct of Business..................................................................33
8.3 Notification.........................................................................34
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
8.4 No Inconsistent Action...............................................................35
8.5 Satisfaction of Conditions...........................................................35
8.6 Filings..............................................................................35
8.7 All Reasonable Efforts...............................................................35
8.8 Further Assurances...................................................................36
8.9 Publicity............................................................................36
8.10 [Intentionally Omitted]..............................................................36
8.11 Bankruptcy Court Approval............................................................36
8.12 Specific Enforcement of Covenants....................................................39
8.13 Other Agreements.....................................................................40
8.14 [Intentionally Omitted]..............................................................40
8.15 Aircraft Inspection Rights...........................................................40
8.16 Designations.........................................................................40
8.17 Marketing Agreements.................................................................41
ARTICLE IX POST-CLOSING COVENANTS........................................................41
9.1 Maintenance of Books and Records.....................................................41
9.2 Right of Subrogation.................................................................41
9.3 Confidentiality......................................................................41
9.4 Post-Closing Assignments.............................................................42
9.5 Transition Agreements................................................................43
9.6 Property Tax Payments................................................................43
9.7 Frequent Flyer Programs..............................................................43
9.8 Access to Information................................................................44
ARTICLE X EMPLOYEE MATTERS..............................................................44
10.1 Hiring Obligations...................................................................44
10.2 Union Matters........................................................................45
10.3 Treatment of Pension Plans...........................................................45
10.4 Treatment of Welfare Plans...........................................................45
10.5 Tax Reporting........................................................................46
ARTICLE XI RISK OF LOSS..................................................................46
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
11.1 Risk of Loss on Sellers..............................................................46
ARTICLE XII FURTHER AGREEMENTS AND TERMINATION............................................46
12.1 Termination Payment..................................................................46
12.2 Bankruptcy Termination Payment.......................................................47
12.3 Termination..........................................................................47
12.4 Procedure and Effect of Termination..................................................49
ARTICLE XIII MISCELLANEOUS PROVISIONS......................................................49
13.1 Notices..............................................................................49
13.2 Actions by Sellers...................................................................51
13.3 Expenses.............................................................................51
13.4 Successors and Assigns...............................................................51
13.5 Waiver...............................................................................51
13.6 Entire Agreement; Disclosure Schedules...............................................51
13.7 Amendments, Supplements, Etc.........................................................52
13.8 Rights of the Parties................................................................52
13.9 Applicable Law.......................................................................52
13.10 Execution in Counterparts............................................................52
13.11 Titles and Headings..................................................................52
13.12 Invalid Provisions...................................................................52
13.13 Transfers............................................................................52
13.14 Brokers..............................................................................52
13.15 Exculpation..........................................................................53
13.16 Principles of Interpretation.........................................................53
</TABLE>
Exhibits
Exhibit A - Definitions
Exhibit B - Sale Procedures Order
Exhibit C - Approval Order
Exhibit D - Retention Agreements
iv
<PAGE> 6
EXHIBIT 10.88
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
This Amended and Restated Asset Purchase Agreement (this "Agreement")
is made and entered into as of February 28, 2001, by and between American
Airlines, Inc., a Delaware corporation ("Purchaser"), and Trans World Airlines,
Inc., a Delaware corporation and debtor-in-possession under Chapter 11 Case No.
01-56 (SLR), jointly administrated, in the United States Bankruptcy Court for
the District of Delaware ("TWA").
RECITALS
WHEREAS, TWA and its direct and indirect subsidiaries (other than Royal
Ambassador Insurance Company, a Vermont insurance company, and Trans World PARS,
Inc., a Delaware corporation) are referred to herein collectively as "Sellers,"
and each is referred to herein individually as a "Seller";
WHEREAS, Purchaser and TWA are parties to that certain Asset Purchase
Agreement, dated as of January 9, 2001 (the "Original Agreement");
WHEREAS, Section 13.7 of the Original Agreement provides that the
Original Agreement may be amended or supplemented at any time as may mutually be
determined by Purchaser and TWA to be necessary, desirable or expedient to
further the purposes of the Original Agreement or to clarify the intention of
the parties thereto; and
WHEREAS, each of Purchaser and TWA has determined that it is desirable
to amend the Original Agreement as set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Purchaser and TWA hereby agree that the Original Agreement be
amended and restated in its entirety as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, unless the context
otherwise requires, capitalized terms used in this Agreement shall have the
meanings set forth in Exhibit A hereto.
1.2 Disclosure Schedules. References to "Schedules" shall mean the
Schedule of Exceptions (and any schedules, exhibits or attachments thereto)
delivered by Purchaser or TWA that are specifically made part of this Agreement.
<PAGE> 7
ARTICLE II
PURCHASE OF ASSETS
2.1 Purchase and Sale of Transferred Assets. On the terms and subject
to the conditions set forth herein, at the Closing as described in Article V,
TWA shall, and shall cause each other Seller to, sell, transfer, convey, assign
and deliver, and Purchaser shall purchase and accept, all of each such Seller's
right, title and interest in and to all such Seller's rights, properties and
assets, wherever located, including, without limitation, (i) all personal and
real property, (ii) all general intangibles and intangible property, including
without limitation all Intellectual Property and goodwill, (iii) all equipment,
furniture and fixtures, (iv) all accounts, accounts receivable and rights to
payment, (v) claims and interests in litigation listed on Schedule 2.1(v) (which
shall exclude all Avoidance Actions), (vi) all existing and future instruments,
chattel paper, documents of title, contracts, agreements, licenses, grants and
rights, (vii) all securities, whether certificated or uncertificated, including,
without limitation, either the capital stock of TWA Stock Holding, Inc. or the
interests in Worldspan L.P., a Delaware limited partnership ("Worldspan") (at
Purchaser's option; provided that Purchaser is the successful bidder of both the
Transferred Assets and the Worldspan interest), but excluding the capital stock
of any Seller other than TWA Stock Holding, Inc., (viii) all security
entitlements, securities accounts, commodity contracts and commodity accounts,
(ix) any and all existing and assignable manufacturer or vendor warranties,
service life policies, customer support agreements and similar items (or to the
extent such items are not assignable, subrogation rights to such items), (x) all
proceeds and products of the foregoing, and (xi) all books and records relating
to the foregoing, in each case of clauses (i) through (xi) above, together with
all substitutions therefor and all accessions, replacements and renewals thereof
(collectively, the "Transferred Assets"), free and clear of all Liens except
Permitted Liens.
2.2 Excluded Assets. Notwithstanding anything contained in this
Agreement to the contrary, the rights, properties and assets identified on
Schedule 2.2 hereto (collectively, the "Excluded Assets") shall not be included
in the Transferred Assets.
ARTICLE III
ASSUMPTION OF LIABILITIES
3.1 Assumed Liabilities. As of the Closing, Purchaser shall assume and
thereafter in due course pay and fully satisfy the following liabilities and
obligations of Seller (the "Assumed Liabilities") and no other liabilities or
obligations:
(a) all liabilities and obligations of any Seller arising from
and after the Closing pursuant to the terms of the indebtedness of Sellers
listed on Schedule 3.1(a) (the "Assumed Debt Obligations");
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<PAGE> 8
(b) all liabilities and obligations of any Seller arising from
and after the Closing under any Assumed Contract (other than Retention
Agreements, which are addressed in Section 3.1(d) below);
(c) all liabilities and obligations of any Seller arising at
any time under the indebtedness and other liabilities of Sellers listed on
Schedule 3.1(c);
(d) all liabilities and obligations of any Seller under the
Retention Agreements; provided, however, that, notwithstanding the foregoing or
any other provision in this Agreement to the contrary, Purchaser shall not
assume any obligation under the Retention Agreements in excess of $14,000,000 in
the aggregate unless Purchaser has requested in writing to TWA that it wishes to
expand such Retention Agreements in scope and amount;
(e) in order to retain directors of TWA, the liabilities and
obligations of TWA to provide the air travel benefits described on Schedule
3.1(e) from and after the Closing;
(f) liabilities and obligations of TWA incurred as a result of
a violation by Purchaser of Section 8.16;
(g) liabilities and obligations of TWA to honor vouchers
issued by TWA solely to passengers who were denied boarding or who voluntarily
relinquished seats on scheduled flights due to overbooking; and
(h) liabilities and obligations of any Seller arising directly
out of those proceedings set forth on Schedule 2.1(v).
Except as set forth above, Purchaser shall not assume or be liable for any other
obligations or liabilities of Sellers (including, without limitation, any cure
amounts payable to other parties to the Assumed Contracts).
3.2 Retained Liabilities. Notwithstanding anything contained in this
Agreement to the contrary, Purchaser does not assume or agree to pay, satisfy,
discharge or perform, and shall not be deemed by virtue of the execution and
delivery of this Agreement or any document delivered at the Closing pursuant to
this Agreement, or as a result of the consummation of the transactions
contemplated by this Agreement, to have assumed, or to have agreed to pay,
satisfy, discharge or perform, any liability, obligation or indebtedness of any
Seller, whether primary or secondary, direct or indirect, other than the Assumed
Liabilities. Sellers shall retain and pay, satisfy, discharge and perform in
accordance with the terms thereof, all liabilities and obligations other than
the Assumed Liabilities to the extent specifically provided in Section 3.1,
including without limitation those set forth below (all such liabilities and
obligations retained by Seller being referred to herein as the "Retained
Liabilities"):
(a) all obligations or liabilities of Sellers or any
predecessor(s) or Affiliate(s) of Sellers that relate to any of the Excluded
Assets;
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<PAGE> 9
(b) all obligations or liabilities of Sellers or any
predecessor(s) or Affiliate(s) of Sellers relating to Taxes with respect to the
Transferred Assets or otherwise, for all periods, or portions thereof, on or
prior to the Closing Date;
(c) all obligations or liabilities for any legal, accounting,
investment banking, brokerage or similar fees or expenses incurred by any Seller
in connection with, resulting from or attributable to the transactions
contemplated by this Agreement and the DIP Facility;
(d) liabilities and obligations for which Purchaser assumes no
obligation or liability as described in Section 3.1(d);
(e) all obligations or liabilities for any borrowed money
incurred by any Seller or any predecessor(s) or Affiliate(s) of Sellers;
(f) all obligations of Sellers related to the right to or
issuance of any capital stock or other equity interest of any Seller, including,
without limitation, any stock options or warrants;
(g) all obligations or liabilities of Sellers to the FAA for
any fines and penalties;
(h) all obligations or liabilities of Sellers to provide air
travel or related services pursuant to any flight travel privileges, awards or
certificates or any similar agreements, arrangements or understandings (whether
written or oral), other than as expressly set forth in Section 3.1(g); and
(i) all liabilities and obligations of Sellers or any
predecessor(s) or Affiliate(s) of Sellers resulting from, caused by or arising
out of, directly or indirectly, the conduct of their respective businesses or
ownership or lease of any of their properties or assets or any properties or
assets previously used by any Seller at any time prior to or on the Closing
Date, including without limitation such of the foregoing (i) as constitute, may
constitute or are alleged to constitute a tort, breach of contract or violation
of requirement of any Law, (ii) that relate to, result in or arise out of the
existence or imposition of any liability or obligation to remediate or
contribute or otherwise pay any amount under or in respect of any environmental,
superfund or other environmental cleanup or remedial Laws, occupational safety
and health Laws or other Laws or (iii) that relate to any and all claims,
disputes, demands, actions, liabilities, damages, suits in equity,
administrative proceedings, accounts, costs, expenses, setoffs, contributions,
attorneys' fees and/or causes of action of whatever kind or character against
any Seller or any predecessor(s) or Affiliate(s) of Sellers, whether past,
present, future, known or unknown, liquidated or unliquidated, accrued or
unaccrued.
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<PAGE> 10
ARTICLE IV
PURCHASE PRICE
4.1 Purchase Price. In consideration of the conveyance to Purchaser of
each Seller's right, title and interest in and to the Transferred Assets and the
other rights granted to Purchaser pursuant hereto, and subject to the conditions
and in accordance with terms hereof, at Closing, Purchaser shall (i) assume the
Assumed Liabilities and (ii) pay TWA an aggregate of $500,000,000 in cash,
subject to adjustments as provided in Section 4.3 and Section 4.4 (clauses (i)
and (ii), together in the aggregate, are referred to as the "Purchase Price"),
any offsets to the Purchase Price pursuant to Section 4.7 and any holdbacks of
the Purchase Price pursuant to Section 4.8.
4.2 Allocation of Purchase Price. Purchaser shall, within 120 days
after the Closing Date, prepare and deliver to TWA for its consent (which
consent shall not be unreasonably withheld) a schedule allocating the Purchase
Price among the Transferred Assets in accordance with Treasury Regulation
1.1060-1T (or any comparable provisions of state or local tax law) or any
successor provision. If TWA raises objections, Purchaser and TWA will negotiate
in good faith to resolve such objections. Purchaser, TWA and each other Seller
shall report and file all Tax Returns (including amended Tax Returns and claims
for refund) consistent with the allocation, and shall take no position contrary
thereto or inconsistent therewith (including, without limitation, in any audits
or examinations by any taxing authority or any other proceedings). Purchaser,
TWA and each other Seller shall cooperate in the filing of any forms (including
Form 8594) with respect to such allocation, including any amendments to such
forms required with respect to any adjustment to the Purchase Price, pursuant to
this Agreement. If and to the extent the parties are unable to agree on such
allocation, each shall be free to make its own allocation for tax purposes.
Notwithstanding any other provisions of this Agreement, the foregoing agreement
shall survive the Closing Date without limitation.
4.3 Working Capital Adjustment.
(a) Prior to Closing, Purchaser shall prepare and deliver to
TWA in accordance with Section 13.1 an estimated statement of certain working
capital accounts of TWA as of the Closing Date in the format of Schedule 4.3(a)
hereto (the "Pre-Closing Statement"). The Pre-Closing Statement shall be
prepared by Purchaser in good faith on a basis consistent in all material
respects with the methods, principles, practices and policies employed in the
preparation and presentation of the consolidated balance sheet of TWA and its
subsidiaries as of September 30, 2000 as included in TWA's quarterly report on
Form 10-Q for the quarter ended September 30, 2000, as filed with the Securities
and Exchange Commission (the "September Balance Sheet"), and in accordance with
generally accepted accounting principles consistently applied (without regard to
consummation of the transactions contemplated by this Agreement or the Chapter
11 Cases).
(b) Based on the Pre-Closing Statement, the Purchase Price
shall be adjusted immediately prior to Closing as follows:
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<PAGE> 11
(i) the Purchase Price shall be (A) increased by 100%
of the amount, if any, by which the Accounts Receivable Amount is
greater than $245,732,000 or (B) decreased by 100% of the amount, if
any, by which the Accounts Receivable Amount is less than $245,732,000;
(ii) the Purchase Price shall be (A) increased by 50%
of the amount, if any, by which the Spare Parts Amount is greater than
$106,333,000 or (B) decreased by 50% of the amount, if any, by which
the Spare Parts Amount is less than $106,333,000;
(iii) the Purchase Price shall be (A) increased by
100% of the amount, if any, by which the Advance Ticket Sales Amount is
less than $304,647,000 or (B) decreased by 100% of the amount, if any,
by which the Advance Ticket Sales Amount is greater than $304,647,000;
and
(iv) the Purchase Price shall be (A) increased by
100% of the amount, if any, by which the Accrued Employee Expenses
Amount is less than $145,206,000 or (B) decreased by 100% of the
amount, if any, by which the Accrued Employee Expenses Amount is
greater than $145,206,000.
(c) Within 45 Business Days after Closing, Purchaser shall
prepare and deliver to TWA in accordance with Section 13.1 a statement of
certain working capital accounts of TWA as of the Closing Date in the format of
Schedule 4.3(a) hereto (the "Closing Statement"). The Closing Statement shall be
prepared by Purchaser in good faith on a basis consistent in all material
respects with the methods, principles, practices and policies employed in the
preparation and presentation of the September Balance Sheet, and in accordance
with generally accepted accounting principles consistently applied (without
regard to consummation of the transactions contemplated by this Agreement).
(d) After receipt of the Closing Statement, TWA shall have 10
Business Days to review it together with the work papers used in the preparation
thereof. Unless TWA delivers written notice to Purchaser on or prior to the 10th
Business Day after TWA's receipt of the Closing Statement stating that it has
objections thereto, TWA shall be deemed to have accepted and agreed to the
Closing Statement. TWA shall not object to any method, principle, practice or
policy employed in the preparation of the Closing Statement if such method,
principle, practice or policy is consistent in all material respects with that
employed in the preparation and presentation of the September Balance Sheet. If,
however, TWA notifies Purchaser of objections to the Closing Statement on or
prior to the 10th Business Day after TWA's receipt of the Closing Statement, the
parties shall in good faith attempt to resolve, within 10 Business Days (or such
longer period as the parties may agree in writing) following such notice (the
"Resolution Period"), their differences with respect to such objections and any
resolution by them as to any disputed amounts shall be final, binding and
conclusive.
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<PAGE> 12
(e) Amounts relating to any working capital account set forth
in the Closing Statement remaining in dispute at the conclusion of the
Resolution Period shall be promptly submitted to the Bankruptcy Court for
determination.
(f) Once the Closing Statement has been finalized in
accordance with this Section 4.3 (as so finalized, the "Final Closing
Statement"), the Purchase Price (without giving effect to the adjustment
provided by Section 4.3(b)) shall be adjusted as follows:
(i) the Purchase Price shall be (A) increased by 100%
of the amount, if any, by which the Accounts Receivable Amount is
greater than $245,732,000 or (B) decreased by 100% of the amount, if
any, by which the Accounts Receivable Amount is less than $245,732,000;
(ii) the Purchase Price shall be (A) increased by 50%
of the amount, if any, by which the Spare Parts Amount is greater than
$106,333,000 or (B) decreased by 50% of the amount, if any, by which
the Spare Parts Amount is less than $106,333,000;
(iii) the Purchase Price shall be (A) increased by
100% of the amount, if any, by which the Advance Ticket Sales Amount is
less than $304,647,000 or (B) decreased by 100% of the amount, if any,
by which the Advance Ticket Sales Amount is greater than $304,647,000;
and
(iv) the Purchase Price shall be (A) increased by
100% of the amount, if any, by which the Accrued Employee Expenses
Amount is less than $145,206,000 or (B) decreased by 100% of the
amount, if any, by which the Accrued Employee Expenses Amount is
greater than $145,206,000.
(g) If the Purchase Price as adjusted pursuant to Section
4.3(f) is less than the Purchase Price as adjusted pursuant to Section 4.3(b),
TWA shall promptly pay Purchaser an amount of cash equal to the difference
obtained by subtracting the Purchase Price as adjusted pursuant to Section
4.3(f) from the Purchase Price as adjusted pursuant to Section 4.3(b). If the
Purchase Price as adjusted pursuant to Section 4.3(f) is greater than the
Purchase Price as adjusted pursuant to Section 4.3(b), Purchaser shall promptly
pay TWA an amount of cash equal to the difference obtained by subtracting the
Purchase Price as adjusted pursuant to Section 4.3(b) from the Purchase Price as
adjusted pursuant to Section 4.3(f).
(h) During the preparation of the Pre-Closing Statement and
Closing Statement and the period of any review or dispute within the
contemplation of this Section 4.3, TWA shall, and shall cause the other Sellers
and all representatives of the Sellers (including, without limitation, TWA's
auditors) to, (i) provide Purchaser and its authorized representatives with full
access at all reasonable times, and in a manner so as not to interfere
unreasonably with the normal business operations of TWA and the other Sellers,
to all relevant books, records, work papers, information and employees of such
Persons, and (ii) cooperate fully with the Purchaser and its authorized
representatives, in
7
<PAGE> 13
each case (i) and (ii), as necessary or useful for the preparation, calculation
and review of the Pre-Closing Statement and Closing Statement or for the
contemplated resolution of any dispute between the parties relating thereto.
(i) Notwithstanding anything in this Section 4.3 to the
contrary, no adjustment to the Purchase Price shall be made unless and until the
aggregate adjustment to the Purchase Price that would otherwise be required by
this Section 4.3 shall equal or exceed $5,000,000, in which case the full amount
of such adjustment shall be made to the Purchase Price pursuant to this Section
4.3 without regard to this paragraph (i).
4.4 Other Adjustments to Purchase Price.
(a) In the event that, as a result of the operation of Section
11.1 or upon mutual agreement of the parties, any Transferred Asset that would
be otherwise purchased at the Closing is not purchased at the Closing (or in the
event that any tangible Transferred Asset has been damaged as described in
Section 11.1, but such damage has not been fully repaired), then the Purchase
Price shall be reduced by the portion of the Purchase Price allocable to such
Transferred Asset in a manner consistent with Schedule 4.4 (or, in the case of
such damaged asset, by the amount necessary to fully repair such damaged asset)
except as otherwise set forth in paragraphs (b), (c), (d) and (e) below.
(b) With respect to each Owned Aircraft, the portion of the
Purchase Price allocated to each such item (and accordingly, the Purchase Price
as a whole) shall be adjusted as follows:
(i) reduced by the amount such Owned Aircraft has
depreciated, determined as set forth on Schedule 4.4, from the date of
the Original Agreement until the date of delivery of such Owned
Aircraft;
(ii) if any Owned Aircraft is not in Delivery
Condition as of the Closing Date, reduced by an amount equal to the
product obtained by multiplying the number of Owned Aircraft that are
not in Delivery Condition as of the Closing Date by $50,000; and
(iii) for each Owned Aircraft that is not to be
transferred to Purchaser at the Closing for any reason, reduced by an
amount consistent with the allocations as set forth on Schedule 4.4.
(c) With respect to each Leased Aircraft, the portion of the
Purchase Price allocated to each such item (and accordingly, the Purchase Price
as a whole) shall be adjusted as follows:
(i) if any Leased Aircraft is not in Delivery
Condition as of the Closing Date, reduced by an amount equal to the
product obtained by multiplying the number of Leased Aircraft that are
not in Delivery Condition as of the Closing Date by $50,000; and
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<PAGE> 14
(ii) for each Leased Aircraft that is not to be
transferred to Purchaser at the Closing for any reason, reduced by an
amount consistent with the allocations as set forth on Schedule 4.4.
(d) With respect to any Slot, Gate, Gate Lease, Ground
Equipment, Ground Equipment Lease, Gate Property, Gate Property Lease, Engine,
Spare Part or any other Transferred Asset that is not to be transferred to
Purchaser at the Closing for any reason, the portion of the Purchase Price
allocated to each such item (and accordingly, the Purchase Price as a whole)
shall be reduced by an amount consistent with the allocations as set forth on
Schedule 4.4 or as mutually agreed by the parties hereto if not specifically
included thereon.
(e) With respect to Aircraft Leases and Gate Leases listed on
Schedule 2.2, all fees, costs, penalties and expenses incurred by Seller as a
result of a breach by Purchaser of Section 8.16 shall be reimbursed by Purchaser
to Seller and the Purchase Price shall be increased by such amount.
(f) In accordance with the Sale Procedures Order, if Purchaser
is the prevailing bidder for Transferred Assets but not for the Worldspan
interest, the Purchase Price shall be reduced by $200,000,000.00.
4.5 Prorations. TWA shall bear all personal property and ad valorem tax
liability with respect to the Transferred Assets if the lien or assessment date
arises prior to the Closing Date irrespective of the reporting and payment dates
of such taxes. All other property taxes, ad valorem taxes and similar recurring
taxes and fees on the Transferred Assets, and all lease payments or similar
recurring payments under lease agreements that are Assumed Contracts, shall be
pro rated between Purchaser and the applicable Seller as of 12:01 a.m. local
time on the Closing Date. All payments to be made by Purchaser or any Seller in
accordance with this Section 4.5 shall be made, to the extent then determinable,
at the Closing with such payments deposited into escrow until due, or, to the
extent not determinable as of the Closing, promptly following the determination
thereof, with such payments deposited into escrow until due. Purchaser shall
have the right of reasonable review and approval of TWA's property tax returns
and assessments and the right to contest any assessment for which Purchaser
bears any economic responsibility. TWA shall reasonably cooperate with Purchaser
to advance any contest.
4.6 Transfer Taxes. Any sales, use, transfer, recording or similar
taxes due as a result of the transactions provided for herein shall be paid (i)
with respect to real property, pro rata by Sellers and Purchaser based on the
relative value of real property transferred to Purchaser pursuant to this
Agreement and (ii) with respect to personal property, by Sellers.
Notwithstanding the foregoing, the Approval Order shall contain a provision that
the Sellers' sale, transfer, assignment and conveyance of the Transf