AMR C O R P O R AT I O N

ANNUAL REPORT 2000

More Room Throughout Coach

The Right Thing To Do

AMERICAN AIRLINES

TA B L E

OF

CONTENTS

ABOUT

Letter to Shareholders, Customers

OUR

ANNUAL REPORT

This years AMR annual report looks a bit different, and for

and Employees

good reason. For the first time, we are delivering our annual report
message through three different media print, CD-ROM and the Web.

Operating Aircraft Fleets

Managements Discussion and Analysis

The theme of this years annual report, The Right Thing To Do,
applies very well to our More Room Throughout Coach initiative

Consolidated Financial Statements

14

Notes to Consolidated Financial Statements

19

Eleven Year Comparative Summary

36

pictured on the front and back covers. We felt it also applied to the
many things we did in 2000 and are continuing to do for our shareholders, customers and employees. And we considered it equally
applicable to our use of different media to distribute this report. You
can read more about our efforts during 2000 in the Chairmans Letter
on the opposite page. You can get a multi-media view of them on the
CD-ROM that accompanies the annual report. And on our Web site,
[Link] youll find the information that we traditionally have included in the shareholder, customer
and employee essays of our printed annual report.

$19,703
$17,730

$6.38

$17,516

$4.81
$4.17
$1,988

$1,381
65.3%

64.7%

1999

1998

62.4%
$1,156

2000

1999

1998

2000

OPERATING REVENUES

1999

1998

EARNINGS PER SHARE

($ in millions)

2000

1999

1998

OPERATING INCOME

($ in millions)

2000

RATIO OF DEBT TO CAPITAL

LETTER

TO

SHAREHOLDERS, CUSTOMERS

2000 was a year marked by muchimproved financial performance and a

number of strategic initiatives that position
AMR well for success in the years to come.
Excluding special items, the Companys net
earnings for the year were $752 million
a result that compares favorably to 1999s
net earnings of $543 million. Robust
demand for air travel and for air cargo
services, as well as product and service
enhancements, prudent capacity growth
and an effective fuel-hedging program all
helped offset a very dramatic increase in
the price of jet fuel.
Producing superior financial returns
is, of course, fundamental to our goal of
making AMR a very rewarding investment
for our shareholders. But 2000 was a
unique year for our Company, as March
brought the spin-off of our 83 percent
stake in Sabre Holdings Corp. (Sabre).
That transaction gave individual shareholders the equivalent of a one-time $34.96 per
share dividend, which means that on the
day the transaction took place, AMR shareholders benefited from a $5.2 billion transfer of market value.
Creating industry-leading outcomes
for our shareholders, customers and
employees is the overarching goal of the
Airline Leadership Plan, the strategic program we launched in 1999 that focuses
the Companys activities on the six areas
that we believe define success for any airline: Safety, Service, Product, Technology,
Culture and Network. In 2000, we made
important strides toward industry leadership in all six.
As has been the case throughout
Americans history, Safety is the foundation
of everything we do. One of 2000s early
highlights took place in January when our
Aviation Safety Action Partnership (ASAP)
program was lauded by President Clinton
as a model to be implemented throughout
the industry. Another important milestone

AND

EMPLOYEES

was the creation of a new organization

reporting directly to the office of the
Chairman sharply focused on issues
of safety, security and the environment.
And within that framework, one of the
very significant developments of 2000
was the reorganization of training in the
Flight Department. We are investing more
than $11 million annually to increase the
frequency of recurrent pilot training.
As we seek new ways to improve
upon our already industry-leading safety
programs, its no secret that high load
factors combined with some unusual
weather and an ongoing crisis in our
nations air traffic control system put a
serious strain on our industrys ability to
deliver the reliable service our customers
deserve and expect. While no carrier can
remedy the inadequacies of the air traffic
control system nor can we do much
about the weather we have made some
important structural changes that are
improving our ability to deliver industryleading Service. In 2000, we completely
overhauled the American Airlines and
American Eagle schedules at our Chicago
OHare and Dallas/Fort Worth connecting
hubs. We also implemented a series
of programs throughout our
Maintenance and Engineering organization designed
to increase the dependability of our fleet.
These and other efforts
have borne fruit, and
while we along with
the rest of the industry
remain somewhat at the
mercy of air traffic control, we are determined
to preserve Americans
reputation for service
leadership by running
the best, most reliable
operation possible.

Donald J. Carty
Chairman, President and CEO

Creating industryleading outcomes for

our shareholders,
customers and employees is the overarching
goal of the Airline
Leadership Plan.

In the third area of airline leadership,

Product, we made tremendous progress
in 2000. We put 43 new jet aircraft into
service at American and introduced 29
new regional jets at American Eagle. More
dramatically, we seized industry leadership
in onboard comfort with the launch and
implementation of our More Room
Throughout Coach program, which is
enhancing the comfort, satisfaction, loyalty
and disposition of virtually every American
Airlines coach customer. We have also
increased legroom in Business Class and
introduced two major enhancements to our
premium cabin the 767 fully flat seat,
and the new Flagship Suite Concept on
our 777 aircraft serving Europe and Latin
America. In addition to our aircraft-related
product enhancements, we also improved
our onboard entertainment options, continued to refresh and improve our physical
infrastructure at airports all over the world,
and began a partnership with America
Online to create AOL/AAdvantage miles,
which gives AAdvantage members a
wealth of new opportunities to earn and
redeem miles, online and off.
The AOL/AAdvantage program is a
good example of how new technology is
changing virtually every part of our business and why technology leadership is
a critically important element of our overall strategy. In 2000, we made important
strides to better leverage the changes taking place in technology to produce positive results for our shareholders, customers
and employees. At airports and reservations centers throughout the American
Airlines system,
we are in
the throes
of major reengineering
projects
designed

to give our people better, easier-to-use

tools that will enable them to provide even
better customer service.
From a marketing perspective, the
Internet revolution is creating enormous
opportunities for American. In 2000, our
Web site, [Link], was hailed by CIO magazine as one of the top 50 business Internet sites. No other airline site made the
list. Kudos are nice, but whats even nicer
is the ability [Link] has given us to leverage the strength of AAdvantage and offer
our best customers a wide range of individualized promotions. While the business
of travel distribution continues to evolve
very quickly with new online channels
emerging on what seems like a daily basis
American is also exploring ways to
exploit the connective power of the Internet to reduce procurement costs. In fact,
we are collaborating with several other
carriers to create a new business-to-business site that we think will streamline, and
wring significant expense and investment
from, our supply chain.
Technology leadership has been a
hallmark of Americans strategy for
decades. Sustaining that leadership in an
environment as fast changing as todays is
tougher than ever. Thats a big reason why
we launched the on-time on-line home
computer program in 2000. This program,
which provides our people with discounted home computers and Internet
access, is an acknowledgement that we
are taking the technology challenge very
seriously and that we will need the participation of the entire American team if we
are going to meet it.
Technology is obviously an area of
our business that has changed dramatically
in recent years. But one part of our management challenge that hasnt changed is
the imperative to consider the interests of
our employees in every decision we make.
Culture leadership is a strategic imperative

every bit as important as the other five

areas of the Airline Leadership Plan,
and in 2000 American launched a number of people initiatives with that in
mind. These include the aforementioned
on-time on-line program, enhancements
to our 401(k) program, improved flight
privileges, the introduction of domestic
partner benefits and a new long-term care
benefit. We also reinvigorated our corporate training programs with the opening
of FlagShip University, created a People
Selection Center focused on more quickly
identifying qualified new-hire candidates,
and reaffirmed our commitment to giving
our people a greater voice through
360 degree performance reviews and
a company-wide employee survey.
These positive initiatives notwithstanding, as we enter 2001, we face a
number of unresolved issues associated
with the unions representing many of
our people, and those issues inject an element of uncertainty into our 2001 forecast.
Nonetheless, we are confident that we will
be able to reach agreements that meet the
needs of the Company and all our employees, while avoiding any disruption of the
American operation.
As we scan the horizon for other
matters affecting our business in 2001 and
beyond, it is clear that Network the sixth
area of our Airline Leadership Plan will
continue to be key to Americans success.
In 2000, we pursued our goal of network
leadership in a number of ways. First, we
grew our domestic network in a very strategic manner, expanding our operations in
cities like Boston, New York, Los Angeles
and San Jose cities that are very important to our prime business customers. In
2001, we will build on our success by
continuing to expand our San Jose schedule with new service to both Paris and
Taipei. The Taipei service is particularly
notable in that it will enable us to begin

the expansion of our

Pacific network by
linking
Silicon Valley
with the very
important technology industries of Taiwan.
Closer to home, were
also pursuing Network Leadership through
American Eagles aggressive deployment
of regional jets. In addition to strengthening and feeding our hubs and putting
hundreds of thousands of customers on
American flights these new aircraft have
been effective weapons as we explore
new point-to-point opportunities in markets previously considered other airlines
strongholds. At the end of 2000, the Eagle
RJ fleet was 83 strong, and as we continue
to grow and strengthen the Eagle fleet and
network, the overall American network
will get stronger as well.
In the global arena, while the past
two years have been a somewhat uncertain time when it comes to airline
alliances, we continue to believe that with
our oneworld partners combined with
our bilateral relationships with carriers
such as Swissair, Sabena, JAL and EVA
of Taiwan we have built the industrys
premier set of alliances. Indeed, despite
a few speed bumps along the way, the
effectiveness of our alliance strategy is
clear. The traffic connecting to American
from our partners has grown dramatically
over the past two years.
While our 2000 network progress
was impressive, three transactions
announced in January 2001 represent a
giant leap forward for our network building efforts. First, we agreed to purchase
substantially all the assets of TWA for
approximately $625 million in cash and
the assumption of over $3 billion of

We seized industry
leadership in onboard
comfort with the
launch and implementation of our More
Room Throughout
Coach program.

Culture leadership is a
strategic imperative
every bit as important
as the other five areas
of the Airline Leadership Plan.

TWAs
obligations.
Second,
American
will acquire
certain key
strategic assets
from US Airways,
including 14 gates, 36 slots
and 86 aircraft. We will also lease the
gates and slots necessary for us to share
the operation of the Northeast Shuttle with
United Airlines. Under the terms of this
transaction, we have agreed to pay $1.2
billion in cash to United Airlines and to
assume approximately $300 million in aircraft operating leases. And third, American
will acquire a 49 percent stake in DC Air, a
new-entrant carrier operating out of Washington Reagan Airport. DC Air to whom
we will wet lease up to 14 Fokker 100 aircraft will participate in the AAdvantage
program, and American will have a right of
first refusal on the acquisition of the
remaining 51 percent of the new airline.
The consummation of the DC Air transaction, as well as our acquisition of assets
from US Airways, is contingent on the
closing of Uniteds proposed merger with
US Airways.
These three transactions mark the
beginning of an exciting new chapter in
American Airlines history and represent
a very positive outcome for all three of
our constituency groups. For our employees, these are terrific developments. We
are growing the airline in a way that will
bring a wealth of hiring and promotional
opportunities for the people of American.
For our customers, the benefits of a
much broader network are clear. Our best
customers both individuals and large corporate accounts increasingly expect their
airline of choice to take them everywhere
they want to go. We are determined to create a domestic and international network

that is second to none. But at the same

time, we do not intend to add more capacity to the industry than the growth in
demand can justify.
Our shareholders will be happy to
know that these transactions will enable
us, in a very economical way, to dramatically grow our airline without introducing
incremental industry capacity. For a commitment of just over $5 billion, we are
adding more than 270 airplanes to our
fleet and acquiring a wealth of other
assets in critical and strategic parts of our
network. There is no other series of deals
we could have made that would have
given us this much breadth and strength
for the amount of money we have committed. Moreover, even with $5 billion committed to these transactions, AMRs balance
sheet remains one of the strongest in the
airline industry.
As always, the forecast for the year
ahead contains a few unknowns, including
the direction of both the U.S. economy
and the price of jet fuel. Nonetheless,
I believe AMR is in excellent shape to
handle whatever 2001 has in store for us.
Demand for our product which we are
working hard to improve continues to
grow. Were committed to building a premier global network. Weve got the best
team of employees in the business, and
new technologies are enabling all of us
to do our jobs better and more profitably.
Add it all up, and I believe that we
have, in American and American Eagle,
a very powerful and well-positioned franchise. And you have my assurance that all
of us will be working hard in 2001 to
build on our 2000 success and to create
positive outcomes for our customers,
employees and shareholders.

Donald J. Carty

O P E R AT I N G A I R C R A F T F L E E T S

As of December 31, 2000

Owned

Capital
Leased

Operating
Leased

Total

Weighted
Average
Age
(Years)

192/250/251
138
134
176
165
158
190/207/228
230/237/252/254
56/87
238
112/125/127/129
135

10
55
51
58
8
9
32
27
66
7
128

451

13

13
7

22

65

25

31

10

126
5
201

35
60
51
102
8
22
49
27
75
7
276
5
717

11
24
1
8
18
14
8
1
8
8
13
4
11

46
37
50
64/66
34
34

20
33
50
40
22

165

57

57

11

25
39

31
33
50
43
79
25
261

10
1
2
6
9
5
6

Current Seating
Capacity 1

American Aircraft

Airbus A300-600R
Boeing 727-200
Boeing 737-800
Boeing 757-200
Boeing 767-200
Boeing 767-200 Extended Range
Boeing 767-300 Extended Range
Boeing 777-200 Extended Range
Fokker 100
McDonnell Douglas MD-11
McDonnell Douglas MD-80
McDonnell Douglas MD-90
Total
AMR Eagle Aircraft

ATR 42
Embraer 135
Embraer 145
Super ATR
Saab 340
Saab 340B Plus
Total
1

Americans current seating capacity includes the effect of aircraft reconfigured under the Companys More Room Throughout Coach program.

Millions
170,000

RPMS

ASMS

Load
Factor
LOAD FACTOR
75%

160,000

150,000

140,000
70%
130,000

120,000

110,000

100,000

65%

2000*

1999

1998

SCHEDULED RPMS AND ASMS

* 2000 has been adjusted for the Companys
More Room Throughout Coach program

MANAGEMENTS DISCUSSION

AND

A N A LY S I S

AMR Corporation (AMR or the Company) was incorporated in October 1982. AMRs principal subsidiary,
American Airlines, Inc. (American), was founded in
1934. AMRs operations fall almost entirely in the
airline industry.

of Canadian and a $67 million tax benefit resulting from

the tax loss on the Companys investment in Canadian,
and (v) a charge of approximately $37 million ($25 million after tax) relating to the provision for certain litigation items.

R E S U LT S

REVENUES

OF

O P E R AT I O N S

AMRs net earnings in 2000 were $813 million, or

$5.43 per common share ($5.03 diluted). AMRs 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 Companys warrants to
purchase 5.5 million shares of [Link] 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 Companys employee home
computer program.
AMRs net earnings in 1999 were $985 million, or $6.46 per common share ($6.26 diluted).
AMRs 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 Companys 1999 results by an estimated
$225 million ($140 million after tax). The results for
1999 also include the following: (i) Americans December 1998 acquisition of Reno Air, Inc. (Reno) and AMR
Eagles 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
Companys 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
Companys sale of its investment in the cumulative
mandatorily redeemable convertible preferred stock

The Companys revenues

increased approximately $2.0 billion, or 11.1 percent,
versus 1999. Americans passenger revenues increased
by 11.4 percent, or $1.7 billion. Americans 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 Companys competitors which positively
impacted the Companys revenues by approximately
$80 to $100 million, and a schedule disruption which
negatively impacted the Companys operations in 1999.
Americans 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 Companys More
Room Throughout Coach program. (The Companys
More Room Throughout Coach program reconfigures
Americans 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.

2000 Compared to 1999

AMR Eagles passenger revenues increased

$158 million, or 12.2 percent. AMR Eagles traffic
increased to 3.7 billion RPMs, up 10.7 percent, while
capacity increased to 6.3 billion ASMs, or 10.9 percent.
The increase in revenues was due primarily to growth
in AMR Eagle capacity aided by a strong U.S. economy,
which led to strong demand for air travel, and a favorable pricing environment.
Cargo revenues increased 12.1 percent, or
$78 million, due primarily to a fuel surcharge implemented in February 2000 and increased in October
2000 and the increase in cargo capacity from the addition of 16 Boeing 777-200ER aircraft in 2000.
The Companys revenues
increased $214 million, or 1.2 percent, versus 1998.
Americans passenger revenues increased by 0.1 percent, or $12 million. Americans 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.
Americans 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.

1999 Compared to 1998

AMR Eagles passenger revenues increased

$173 million, or 15.4 percent. AMR Eagles 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.
O P E R AT I N G E X P E N S E S

The Companys operating

expenses increased 10.5 percent, or approximately
$1.7 billion. Americans cost per ASM increased by
10.5 percent to 10.38 cents, partially driven by a
reduction in ASMs due to the Companys More Room
Throughout Coach program. Adjusting for this program, Americans 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 Companys labor contracts,
an increase of approximately $93 million in the
provision for profit-sharing, and a charge of approximately $56 million for the Companys employee home
computer program. Aircraft fuel expense increased
$799 million, or 47.1 percent, due to an increase of
42.0 percent in the Companys average price per gallon and a 3.7 percent increase in the Companys fuel
consumption. The increase in fuel expense is net of
gains of approximately $545 million recognized during
2000 related to the Companys fuel hedging program.
Depreciation and amortization expense increased
$110 million, or 10.1 percent, due primarily to the
addition of new aircraft, many of which replaced older
aircraft. Maintenance, materials and repairs expense
increased $92 million, or 9.2 percent, due primarily to
an increase in airframe and engine maintenance volumes at the Companys maintenance bases and an
approximate $17 million one-time credit the Company
received in 1999. Commissions to agents decreased
10.8 percent, or $125 million, despite an 11.4 percent
increase in passenger revenues, due primarily to commission structure changes implemented in October 1999
and January 2000, and a decrease in the percentage of
commissionable transactions.

2000 Compared to 1999

The Companys operating

expenses increased 6.7 percent, or approximately
$1 billion. Americans 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 Companys 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 Companys fuel consumption and a 0.2 percent
increase in the Companys average price per gallon.
The increase in fuel expense is net of gains of approximately $111 million recognized during 1999 related to
the Companys 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 Americans 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.

1999 Compared to 1998

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 Companys 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 Americans interest in
Equant and a gain of approximately $40 million related
to the sale of the Companys investment in the preferred
stock of Canadian. These gains were partially offset by
the provision for the settlement of litigation items and
the write-down of certain investments held by the Company during 1999.

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
Americans 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 Companys
investment in the preferred stock of Canadian. These
gains were partially offset by the provision for the settlement of litigation items and the write-down of certain
investments held by the Company during 1999.

1999 Compared to 1998

O P E R AT I N G S T AT I S T I C S

The following table provides statistical information for

American and AMR Eagle for the years ended December 31, 2000, 1999 and 1998.
Year Ended December 31,
2000
American Airlines
Revenue passenger miles (millions)
Available seat miles (millions)
Cargo ton miles (millions)
Passenger load factor
Breakeven load factor
Passenger revenue yield
per passenger mile (cents)
Passenger revenue
per available seat mile (cents)
Cargo revenue yield
per ton mile (cents)
Operating expenses
per available seat mile (cents)
Operating aircraft at year-end
AMR Eagle
Revenue passenger miles (millions)
Available seat miles (millions)
Passenger load factor
Operating aircraft at year-end

LIQUIDITY

AND

1999

1998

116,594 112,067 108,955

161,030 161,211 155,297
2,280
2,068
1,974
72.4%
69.5%
70.2%
65.9%
63.8%
59.9%
14.05

13.12

13.49

10.17

9.12

9.46

31.31

30.70

32.85

10.38
717

9.39
697

9.25
648

3,371
5,640
59.8%
268

2,788
4,471
62.4%
209

3,731
6,256
59.6%
261

C A P I TA L R E S O U R C E S

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 Companys Board of Directors.
The Company expects to fund its 2001 capital expenditures from the Companys existing cash and short-term
investments, internally generated cash or new financing
depending upon market conditions and the Companys
evolving view of its long-term needs.
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 TWAs obligations. The Companys 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 Companys offer.
TWA filed for bankruptcy protection on January 10,
2001. In conjuction therewith, the Company also agreed
to provide TWA with up to $200 million in debtor-inpossession financing to facilitate TWAs 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 TWAs 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 Companys bid will be
more that offset, however, by the benefit to the Company of the reductions in rental rates the Company has
negotiated with TWAs aircraft lessors. On March 7,
2001, TWAs board selected the Companys 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 TWAs assets to the Company. Consummation of the transaction is subject to
several contingencies, including the waiver by TWAs
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 Courts 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 Americans
operations with a continued hub operation in St. Louis.
The Company expects to fund the acquisition of TWAs
assets with its existing cash and short-term investments,
internally generated cash or new financing depending
on market conditions and the Companys 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
10

acquisition of aircraft is generally dependent upon a

certain number of US Airways Boeing 757 cockpit crew
members transferring to Americans 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. Americans 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 Americans 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.
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 Companys ability to meet
its obligations as they become due and is not expected
to do so in the future.
O T H E R I N F O R M AT I O N

Environmental Matters Subsidiaries of AMR have been

notified of potential liability with regard to several environmental cleanup sites and certain airport locations. At
sites where remedial litigation has commenced, potential liability is joint and several. AMRs alleged volumetric contributions at these sites are minimal compared to
others. AMR does not expect these matters, individually
or collectively, to have a material impact on its results
of operations, financial position or liquidity. Additional
information is included in Note 3 to the consolidated
financial statements.

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 derivatives
change in fair value will be immediately recognized
in earnings. The adoption of SFAS 133 did not have a
material impact on the Companys net earnings. However, the Company recorded a transition adjustment of
approximately $100 million in accumulated other comprehensive income in the first quarter of 2001.
New Accounting Pronouncement

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. Americans 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, Americans capacity in 2001 is expected to
grow about three percent, slightly less than the industry
average. AMR Eagles 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 Companys 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 Companys position as an east/west carrier. In addition, these proposed transactions will allow
the Company to gain additional slots and real estate at

New Yorks 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 OHare, 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 Companys 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.
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 Companys 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 maintenace, materials and repairs
expense will also be up, reflecting 2000 and 2001 aircraft deliveries. Other expense lines will see volumedriven 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 Companys 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

11

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.

Companys Securities and Exchange Commission filings,

including but not limited to Form 10-K for 2000, copies
of which are available from the Company without
charge.
MARKET RISK SENSITIVE INSTRUMENTS
AND

F O R W A R D - L O O K I N G I N F O R M AT I O N

The preceding Letter to Shareholders, Customers and

Employees and Managements Discussion and Analysis
contain various forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, which represent the Companys expectations or beliefs concerning future events.
When used in this document and in documents incorporated herein by reference, the words expects,
plans, anticipates 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
Companys 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 codesharing 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 Companys actual
results to differ materially from those expressed in
forward-looking statements: uncertainty of future
collective bargaining agreements and events; economic
and other conditions; commodity prices; competition in
the airline industry; changing business strategy; government regulation; uncertainty in international operations;
and industry consolidation. Additional information
concerning these and other factors is contained in the

12

POSITIONS

The risk inherent in the Companys market risk sensitive instruments and positions is the potential loss arising from adverse changes in the price of fuel, foreign
currency exchange rates and interest rates as discussed
below. The sensitivity analyses presented do not consider the effects that such adverse changes may have
on overall economic activity, nor do they consider
additional actions management may take to mitigate
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 pages 9 and 10.
Aircraft Fuel The Companys earnings are affected by
changes in the price and availability of aircraft fuel. In
order to provide a measure of control over price and
supply, the Company trades and ships fuel and maintains fuel storage facilities to support its flight operations. The Company also manages the price risk of
fuel costs primarily 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.

The Company is exposed to the

effect of foreign exchange rate fluctuations on the U.S.
dollar value of foreign currency-denominated operating
revenues and expenses. The Companys largest exposure comes from the 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 Companys 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.
Foreign Currency

The Companys earnings are also affected

by changes in interest rates due to the impact those
changes have on its interest income from cash and
short-term investments, and its interest expense from
variable-rate debt instruments. The Company has
variable-rate debt instruments representing approximately 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
Companys 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 Companys interest expense would
have increased by approximately $10 million and inter-

Interest

est 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 Companys
variable-rate long-term debt, interest rate swap agreements, and cash and short-term investment balances
at December 31, 2000 and 1999.
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 Companys long-term
debt were estimated using quoted market prices or
discounted future cash flows based on the Companys
incremental borrowing rates for similar types of borrowing arrangements.
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.

Investments

13

C O N S O L I D AT E D S T AT E M E N T S

OF

O P E R AT I O N S

(in millions, except per share amounts)

2000

Year Ended December 31,

1999
1998

Revenues
Passenger American Airlines, Inc.

$ 16,377

$ 14,707

$ 14,695

1,452

1,294

1,121

AMR Eagle
Cargo
Other revenues
Total operating revenues

721

643

656

1,153

1,086

1,044

19,703

17,730

17,516

6,783

6,120

5,793

Expenses
Wages, salaries and benefits
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

3,327

3,189

2,847

18,322

16,574

15,528

1,381

1,156

1,988

Interest income

154

95

133

Interest expense

(467)

(393)

(372)

151

118

104

Other operating expenses

Total operating expenses
Operating Income
Other Income (Expense)

Interest capitalized
Miscellaneous net

68

30

(20)

(94)

(150)

(155)

Income From Continuing Operations Before Income Taxes

and Extraordinary Loss

1,287

1,006

Income tax provision

508

350

719

Income From Continuing Operations Before Extraordinary Loss

779

656

1,114

43

265

200

64

822

985

1,314

Income From Discontinued Operations, Net of Applicable

Income Taxes and Minority Interest
Gain on Sale of Discontinued Operations, Net of Applicable
Income Taxes
Income Before Extraordinary Loss
Extraordinary Loss, Net of Applicable Income Taxes
Net Earnings

(9)
$

1,833

813

985

$ 1,314

5.20

4.30

Earnings Per Share:

Basic
Income from continuing operations

Discontinued operations

0.30

Extraordinary loss
Net earnings

2.16

(0.07)
$

6.60
1.18

5.43

6.46

7.78

4.81

4.17

6.38

Diluted
Income from continuing operations

Discontinued operations

0.27

Extraordinary loss
Net earnings
The accompanying notes are an integral part of these financial statements.
14

2.09

(0.05)
$

5.03

1.14

6.26

7.52

C O N S O L I D AT E D S T AT E M E N T S

OF

CASH FLOWS

(in millions)

2000

Year Ended December 31,

1999
1998

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

14

(57)

(95)

(15)

(19)

Extraordinary loss on early extinguishment of debt

Gain on sale of other investments, net
Gain on disposition of equipment and property

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
Net cash provided by operating activities

15

196

144

3,142

2,264

2,797

(3,678)

(3,539)

(2,342)

(438)

(253)

348

(50)

(99)

(137)

Cash Flow from Investing Activities:

Capital expenditures, including purchase deposits on flight equipment
Net decrease (increase) in short-term investments
Acquisitions and other investments
Proceeds from:
Dividend from Sabre Holdings Corporation

559

Sale of equipment and property

238

79

262

94

85

259

Sale of other investments

Sale of discontinued operations
Other

Net cash used for investing activities

18

(3,275)

(3,450)

(1,869)

(766)

(280)

(547)

Cash Flow from Financing Activities:

Payments on long-term debt and capital lease obligations
Proceeds from:
Issuance of long-term debt

836

1,956

246

67

25

85

Short-term loan from Sabre Holdings Corporation

300

Sale-leaseback transactions

54

270

Exercise of stock options

Repurchase of common stock

Net cash provided by (used for) financing activities

Net increase (decrease) in cash

(945)

1,184

Cash at beginning of year

Cash at end of year

(871)

137

(891)

(2)

85

37

87

89

Distribution of Sabre Holdings Corporation shares to AMR shareholders

581

Payment of short-term loan from Sabre Holdings Corporation

Capital lease obligations incurred

50

85

87

300

54

270

Activities Not Affecting Cash

The accompanying notes are an integral part of these financial statements.

15

C O N S O L I D AT E D B A L A N C E S H E E T S

December 31,
2000
1999

(in millions)
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

5,179

4,424

20,041

16,912

Total current assets

Equipment and Property
Flight equipment, at cost
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

2,618

3,141

Equipment and Property Under Capital Leases

Flight equipment
Other equipment and property
Less accumulated amortization

159

155

2,777

3,296

1,233

1,347

1,544

1,949

1,143

1,191

Other Assets
Route acquisition costs and airport operating and gate lease rights,
less accumulated amortization (2000 $498; 1999 $450)
Other
Total Assets
The accompanying notes are an integral part of these financial statements.

16

1,255

2,472

2,398

3,663

$ 26,213

$ 24,374

December 31,
(in millions, except shares and par value)
LIABILITIES

AND

2000

1999

STOCKHOLDERS EQUITY

Current Liabilities
Accounts payable
Accrued salaries and wages

$ 1,267

$ 1,115

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

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

2,385

1,846

Total current liabilities

Other Liabilities and Credits

Deferred income taxes
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
Additional paid-in capital
Treasury shares at cost: 2000 30,216,218; 1999 34,034,110
Accumulated other comprehensive income
Retained earnings
Total Liabilities and Stockholders Equity

182

182

2,911

3,061

(1,865)

(2,101)

(2)

(2)

5,950

5,718

7,176

6,858

$ 26,213

$ 24,374

17

C O N S O L I D AT E D S T AT E M E N T S

OF

STOCKHOLDERS EQUITY

(in millions, except share amounts)

Balance at January 1, 1998

Common
Stock

Additional
Paid-in
Capital

$ 182

$ 3,104

Net earnings and total

comprehensive income

Repurchase of 14,342,008 common shares

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
Balance at December 31, 1998

(29)

Treasury
Stock

Accumulated
Other
Comprehensive
Income

Retained
Earnings

Total

$ (485)

$ (4)

$ 3,419

$ 6,216

1,314

1,314

(944)

141

112

4,733

6,698

985

985

(1)

182

3,075

(1,288)

Net earnings

Adjustment for minimum pension liability,

net of tax expense of $1

Unrealized loss on investments, net of

tax benefit of $1

(4)

Total comprehensive income

Repurchase of 14,062,358 common shares
Issuance of 955,940 shares from Treasury
pursuant to stock option, deferred stock
and restricted stock incentive plans,
net of tax benefit of $4
Balance at December 31, 1999

(14)

(871)

58
(2,101)

(2)

44
6,858

813

813

Net earnings

Adjustment for minimum pension liability,

net of tax expense of $3

(5)

Unrealized gain on investments,

net of tax expense of $2

Total comprehensive income

Balance at December 31, 2000

(5)
5
813

$ 182

(150)
$ 2,911

The accompanying notes are an integral part of these financial statements.

18

(871)

5,718

3,061

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

(1)
987

182

Distribution of Sabre Holdings Corporation

shares to AMR shareholders

(944)

236
$(1,865)

$ (2)

(581)

(581)

86

$ 5,950

$ 7,176

NOTES

TO

C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S

1. SUMMARY

OF

ACCOUNTING POLICIES

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.
Basis of 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.

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.

Inventories

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:
Depreciable Life
Boeing 727-200 aircraft
Other American jet aircraft
Regional aircraft and engines
Major rotable parts,
avionics and assemblies
Improvements to leased flight equipment
Buildings and improvements
(principally on leased land)
Furniture, fixtures and other equipment
Capitalized software
1

20031
2030 years
1620 years
Life of equipment to
which applicable
Term of lease
1030 years or term
of lease
320 years
310 years

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.
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.

Equipment and Property

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.
Maintenance and Repair Costs

19

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.
Intangible Assets

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 Companys stock option grants is at or
above the fair market value of the underlying stock
on the date of grant.
2. INVESTMENTS

Short-term investments consisted of (in millions):

December 31,

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.

Passenger Revenues

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.

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.

Frequent Flyer Program

Short-term investments,
without regard to remaining maturity at acquisition, are
not considered as cash equivalents for purposes of the
statements of cash flows.

Statements of Cash Flows

The Company accounts for its stockbased compensation plans in accordance with Accounting Principles Board Opinion No. 25, Accounting for

Stock Options

20

2000
Overnight investments and
time deposits
Corporate and bank notes
U.S. Government agency mortgages
Asset backed securities
U.S. Government agency notes
Other

1999

$ 361
906
442
361

74

1,173
94
145
234
60

$2,144

$ 1,706

Short-term investments at December 31, 2000, by

contractual maturity included (in millions):
Due in one year or less
Due between one year and three years
Due after three years

$ 994
1,104
46
$2,144

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 [Link] Incorporated (priceline)
whereby ticket inventory provided by the Company
may be sold through pricelines e-commerce system. In
conjunction with this agreement, the Company received
warrants to purchase approximately 5.5 million shares
of priceline common stock. In the second quarter of
2000, the Company sold these warrants for proceeds
of approximately $94 million, and recorded a gain of
$57 million, which is included in Miscellaneous net on
the accompanying consolidated statements of operations.
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 Companys 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.
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 Companys 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 nonairport locations. Management believes, after considering a number of factors, that the ultimate disposition of
these environmental issues is not expected to materially
affect the Companys consolidated financial position,
results of operations or cash flows. Amounts recorded
for environmental issues are based on the Companys
current assessments of the ultimate outcome and,
accordingly, could increase or decrease as these
assessments change.

21

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.
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 Americans option, certain
letters of credit are secured by funds held by bond
trustees and by approximately $540 million of shortterm investments.

22

4. LEASES

AMRs subsidiaries lease various types of equipment

and property, including aircraft, and airport and offairport 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):
Year Ending December 31,
2001
2002
2003
2004
2005
2006 and subsequent

Capital Operating
Leases
Leases
$

320
276
195
246
178
867
2,0821

Less amount representing interest

Present value of net minimum lease payments
1

984
921
931
913
900
11,306

$ 15,9552

532
$ 1,550

Includes $191 million guaranteed by AMR relating to special facility revenue

bonds issued by municipalities.
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 lessors 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.

5. INDEBTEDNESS

lion for 2000, 1999 and 1998, respectively.

Long-term debt (excluding amounts maturing within

one year) consisted of (in millions):

6. FINANCIAL INSTRUMENTS

December 31,
Secured variable and fixed rate indebtedness
due through 2016 (effective rates
from 6.71%9.597% at December 31, 2000)
7.875%10.62% notes due through 2039
9.0%10.20% debentures due through 2021
6.0%7.10% bonds due through 2031
Unsecured variable rate indebtedness
due through 2024 (3.55% at December 31, 2000)
Other
Long-term debt, less current maturities

2000

1999

$3,209
345
332
176

$ 2,556
812
437
176

86
3

86
11

$4,151

$ 4,078

AND

RISK MANAGEMENT

As part of the Companys 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

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 Americans 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
Americans debt and credit facility agreements contain
restrictive covenants, including a minimum net worth
requirement, which could limit Americans 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 mil-

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
Companys 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.
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 industrystandard 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

23

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 Companys interest rate swap
agreements (in millions):
December 31,
2000

1999

Notional
Notional
Amount Fair Value Amount

Interest rate swap agreements

$ 158

$4

$ 696

Fair Value

$ (9)

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:

Floating rates are based primarily on LIBOR and

may change significantly, affecting future cash flows.
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 Companys 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
Companys fuel hedging agreements at December 31,
1999, representing the amount the Company would
receive to terminate the agreements, totaled $232 million.

December 31,
Average floating rate
Average fixed rate

24

2000

1999

6.798%
6.631%

5.855%
6.593%

To hedge against
the risk of future exchange rate fluctuations on a portion of Americans foreign cash flows, the Company
enters into various currency put option agreements on a
number of foreign currencies. The option contracts are
Foreign Exchange Risk Management

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 Companys yen currency
exchange agreements, representing the amount the
Company would pay or receive to terminate the agreements, were (in millions):
December 31,
2000

Japanese yen

1999

Notional
Amount

Fair
Value

Notional
Amount

Fair
Value

31.0 billion

$ (5)

33.6 billion

$ 41

The exchange rates on the Japanese yen agreements range from 66.5 to 113.5 yen per U.S. dollar.
The fair values of
the Companys long-term debt were estimated using
quoted market prices where available. For long-term
debt not actively traded, fair values were estimated
using discounted cash flow analyses, based on the
Companys current incremental borrowing rates for similar types of borrowing arrangements.

Fair Values of Financial Instruments

The carrying amounts and estimated fair values of the

Companys long-term debt, including current maturities,
were (in millions):
December 31,
2000

Secured variable and fixed

rate indebtedness
7.875%10.62% notes
9.0%10.20% debentures
6.0%7.10% bonds
Unsecured variable rate
indebtedness
Other

1999

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

$ 3,366
749
332
176

$ 3,455
759
358
179

$ 2,651
1,014
437
176

$ 2,613
1,024
469
174

86
11

86
11

86
16

86
16

$ 4,720

$ 4,848

$ 4,380

$ 4,382

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
derivatives change in fair value will be immediately
recognized in earnings. The adoption of SFAS 133 did
not have a material impact on the Companys net earnings. However, the Company recorded a transition
adjustment of approximately $100 million in accumulated other comprehensive income in the first quarter
of 2001.

25

7 . I N C O M E TA X E S

The significant components of the income tax provision

were (in millions):

Cash payments for income taxes were $49 million,

$71 million and $408 million for 2000, 1999 and 1998,
respectively.

Year Ended December 31,

Current
Deferred

2000

1999

1998

8. COMMON

$ 47
461

$ 167
183

$ 451
268

$ 508

$ 350

$ 719

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.

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.
The income tax provision differed from amounts
computed at the statutory federal income tax rate as follows (in millions):
Year Ended December 31,
2000

1999

1998

Statutory income tax provision

State income tax provision,
net of federal benefit
Meal expense
Change in valuation allowance
Other, net

$ 450

$ 352

$ 641

Income tax provision

$ 508

30
19

32
19
(67)
14

51
18
(4)
13

$ 350

$ 719

The change in valuation allowance in 1999 relates

to the realization of a tax loss on the sale of the
Companys investment in Canadian (see Note 2). The
change in valuation allowance in 1998 relates to the utilization of foreign tax credits.
The components of AMRs deferred tax assets and
liabilities were (in millions):
December 31,
2000
Deferred tax assets:
Postretirement benefits other than pensions
Rent expense
Frequent flyer obligation
Gains from lease transactions
Alternative minimum tax credit carryforwards
Other
Total deferred tax assets
Deferred tax liabilities:
Accelerated depreciation and amortization
Pensions
Other
Total deferred tax liabilities
Net deferred tax liability

632
522
362
225
184
541

1999
$

614
449
307
238
289
520

2,466

2,417

(3,822)
(89)
(245)

(3,381)
(50)
(220)

(4,156)

(3,651)

$(1,690) $(1,234)

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.
26

AND

PREFERRED STOCK

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,
AMRs stock price was adjusted from $60916 to $25916 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:

Year Ended December 31,
2000

1999

1998

Options

Weighted
Average
Exercise
Price

Options

Weighted
Average
Exercise
Price

Outstanding at January 1
Sabre adjustment
Granted
Exercised
Canceled

5,219,634 $ 52.06
7,150,899

6,003,111
30.21
(1,557,034)
32.85
(247,703)
23.38

4,147,124

1,539,585
(258,875)
(208,200)

$ 46.60

63.19
68.17
49.96

3,506,774

1,216,720
(470,810)
(105,560)

$ 38.77

63.01
31.82
42.34

Outstanding at December 31

16,568,907

$ 25.42

5,219,634

$ 52.06

4,147,124

$ 46.60

5,334,444

$ 19.79

2,012,889

$ 40.63

1,586,974

$ 36.49

Options

Exercisable options outstanding at December 31

Weighted
Average
Exercise
Price

The following table summarizes information about the stock options outstanding at December 31, 2000:

Range of Exercise Prices

Under $20
$20$30
Over $30

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:
Year Ended December 31,
2000

1999

1998

Outstanding at January 1
Sabre adjustment
Exercised

5,420,028
7,421,048
(1,850,886)

5,791,381 7,438,220

(371,353) (1,646,839)

Outstanding at December 31

10,990,190

5,420,028

Number of
Options
Outstanding

Weighted
Average
Remaining
Life (years)

Weighted
Average
Exercise
Price

Number of
Options
Exercisable

Weighted
Average
Exercise
Price

3,073,130
8,113,906
5,381,871

4.21
8.26
9.14

$ 14.93
24.71
32.48

2,769,990
1,992,625
571,829

$ 14.75
23.62
30.83

16,568,907

7.79

$ 25.42

5,334,444

$ 19.79

Shares of deferred stock are awarded at no cost to

officers and key employees under the Plans Career
Equity Program and will be issued upon the individuals
retirement from AMR or, in certain circumstances, will
vest on a pro rata basis. Deferred stock activity was:
Year Ended December 31,
1999

1998

Outstanding at January 1
Sabre adjustment
Granted
Issued
Canceled

2,310,680
3,165,632

(479,177)
(40,638)

2000

2,401,532

146,200
(122,042)
(115,010)

2,457,190

185,812
(190,911)
(50,559)

Outstanding at December 31

4,956,497

2,310,680

2,401,532

The weighted-average grant date fair value of

career equity awards granted during 1999 and 1998 was
$63.54 and $57.77, respectively.

5,791,381

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.

27

A performance share plan was implemented in

1993 under the terms of which shares of deferred stock
are awarded at no cost to officers and key employees
under the Plans. The fair value of the performance
shares granted is equal to the market price of the Companys stock at the date of grant. The shares vest over a
three-year performance period based upon certain specified financial measures of AMR. Performance share
activity was:
Year Ended December 31,
Outstanding at January 1
Sabre adjustment
Granted
Issued
Awards settled in cash
Canceled
Outstanding at December 31

2000

1999

1998

1,215,644
1,665,432
1,277,539
(399,517)
(1,200,177)
(51,166)

1,565,616

509,822
(208,265)
(513,370)
(138,159)

1,737,274

644,680
(205,458)
(522,234)
(88,646)

2,507,755

1,215,644

1,565,616

traded options, and because changes in the subjective

input assumptions can materially affect the fair value
estimate, in managements opinion, the existing models
do not necessarily provide a reliable single measure
of the fair value of its employee stock options. 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.
The following table shows the Companys 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):
Year Ended December 31,

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 Companys employee stock options have
characteristics significantly different from those of

28

2000
Income from continuing operations
before extraordinary loss:
As reported
$ 779
Pro forma
772
Basic earnings per share from continuing
operations before extraordinary loss:
As reported
$ 5.20
Pro forma
5.15
Diluted earnings per share from continuing
operations before extraordinary loss:
As reported
$ 4.81
Pro forma
4.77

1999

1998

$ 656
651

$ 1,114
1,114

$ 4.30
4.27

$ 6.60
6.60

$ 4.17
4.14

$ 6.38
6.38

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.
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):
Pension Benefits
2000
1999
Reconciliation of benefit
obligation
Obligation at January 1
Service cost
Interest cost
Actuarial loss (gain)
Plan amendments
Benefit payments
Curtailments/Special
termination benefits
Obligation at December 31

$ 5,628
213
467
499

(373)

$ 6,117
236
433
(849)
75
(388)

$ 6,434

Other Benefits
2000
1999

$ 1,306
43
108
328

(77)

4
$ 5,628

$ 1,526
56
108
(311)

(70)

$ 1,708

$ 1,306

$ 5,564
7
100
(388)
(1)

Fair value of plan assets

at December 31

$ 5,731

$ 5,282

$ 5,306

$ 4,700

$ 1,708

$ 1,306

6,434
5,731

5,628
5,282

88

72

Funded status at December 31

Unrecognized loss (gain)
Unrecognized prior
service cost
Unrecognized transition
asset
Prepaid (accrued)
benefit cost

(703)
523

(346)
288

129

139

(6)
$

(57)

(7)
$

74

72
5
88
(77)

88

62
1
79
(70)

72

(1,620)
(51)

(1,234)
(395)

(35)

(40)

Pension Benefits
Components of net periodic
benefit cost
Defined benefit plans:
Service cost
Interest cost
Expected return on assets
Amortization of:
Transition asset
Prior service cost
Unrecognized net loss
Settlement loss
Net periodic benefit cost for
defined benefit plans
Defined contribution plans
Total

2000

1999

1998

$ 213
467
(490)

$ 236
433
(514)

$ 213
418
(478)

(1)
10
17

(4)
5
21

(11)
4
22
6

216
174

177
155

174
158

$ 390

$ 332

$ 332

Other Benefits

(3)

Reconciliation of fair
value of plan assets
Fair value of plan assets
at January 1
$ 5,282
Actual return on plan assets
735
Employer contributions
85
Benefit payments
(373)
Transfers
2

Funded status
Accumulated benefit
obligation (ABO)
Projected benefit
obligation (PBO)
Fair value of assets

The following tables provide the components of

net periodic benefit cost for the years ended December 31, 2000, 1999 and 1998 (in millions):

Components of net periodic

benefit cost
Service cost
Interest cost
Expected return on assets
Amortization of:
Prior service cost
Unrecognized net gain
Net periodic benefit cost

2000

1999

1998

$ 43
108
(7)

$ 56
108
(6)

$ 52
99
(5)

(5)
(14)

(5)

(5)
(2)

$ 125

$ 153

$ 139

The following table provides the amounts recognized in the consolidated balance sheets as of December 31, 2000 and 1999 (in millions):
Pension Benefits
2000
1999
Prepaid benefit cost
Accrued benefit liability
Additional minimum liability
Intangible asset
Accumulated other
comprehensive income

$ 107
(225)
(21)
72

Net amount recognized

$ (57)

10

$ 244
(170)
(15)
13
2
$ 74

Other Benefits
2000
1999
$

(1,706)

(1,669)

$(1,706) $(1,669)

$(1,706) $(1,669)

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.

The following assumptions were used by the

Company in the measurement of the benefit obligation
as of December 31:
Pension Benefits
2000 1999
Weighted-average assumptions
Discount rate
Salary scale
Expected return on plan assets

7.75% 8.25%
4.26
4.26
9.50
9.50

Other Benefits
2000 1999
7.75% 8.25%

9.50 9.50

29

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):
One percent One percent
increase
decrease
Impact on 2000 service and interest cost
Impact on postretirement benefit obligation
as of December 31, 2000

$ 20

$ (19)

$ 137

$(131)

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 Companys 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.
11. EARNINGS PER SHARE

The following table sets forth the computation of basic

and diluted earnings per share (in millions, except per
share amounts):
Year Ended December 31,
Numerator:
Numerator for earnings per share
income from continuing operations
before extraordinary loss
Denominator:
Denominator for basic earnings per
share weighted-average shares
Effect of dilutive securities:
Employee options and shares
Assumed treasury shares purchased

2000

1999

1998

$ 779

$ 656

$ 1,114

150

152

169

27
(15)

12
(7)

13
(7)

12

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

Dilutive potential common shares

Denominator for diluted earnings per
share adjusted weighted-average
shares

30

1 2 . D I S C O N T I N U E D O P E R AT I O N S

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 AMRs entire ownership interest in
Sabre as a dividend on all outstanding shares of its
common stock. To effect the dividend, AMR exchanged
all of its 107,374,000 shares of Sabres Class B common
stock for an equal number of shares of Sabres Class A
common stock. Effective after the close of business on
March 15, 2000, AMR distributed 0.722652 shares of
Sabre Class A common stock for each share of AMR
stock owned by AMRs shareholders. The record date
for the dividend of Sabre stock was the close of business on March 1, 2000. In addition, on February 18,
2000, Sabre paid a special one-time cash dividend of
$675 million to shareholders of record of Sabre common stock at the close of business on February 15,
2000. Based upon its approximate 83 percent interest
in Sabre, AMR received approximately $559 million of
this dividend. The dividend of AMRs entire ownership
interest in Sabres common stock resulted in a reduction to AMRs retained earnings in March of 2000
equal to the carrying value of the Companys investment in Sabre on March 15, 2000, which approximated
$581 million. The fair market value of AMRs investment
in Sabre on March 15, 2000, based upon the quoted
market closing price of Sabre Class A common stock
on the New York Stock Exchange, was approximately
$5.2 billion. In addition, effective March 15, 2000, the
Company reduced the exercise price and increased
the number of employee stock options and awards
by approximately 19 million to offset the dilution to
the holders, which occurred as a result of the spin-off.
These changes were made to keep the holders in the
same economic position as before the spin-off. This
dilution adjustment was determined in accordance
with Emerging Issues Task Force Consensus No. 90-9,
Changes to Fixed Employee Stock Option Plans as
a Result of Equity Restructuring, and had no impact
on earnings.

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):
Year Ended December 31,
Sabre
Revenues
Minority interest
Income taxes
Net income
AMR Services, AMR Combs and
TeleService Resources
Revenues
Income taxes
Net income

2000

1999

1998

$ 542
10
36
43

$ 2,435
57
196
265

$ 2,306
40
140
192

97

513
7
8

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):
Current assets
Total assets
Current liabilities
Total liabilities, including minority interest
Net assets of discontinued operations

976
1,951
525
912
1,039

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 Americans high-traffic cities to
smaller markets throughout the United States, Canada,
the Bahamas and the Caribbean.
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 Companys
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 Companys operating revenues by geographic
region are summarized below (in millions):
Year Ended December 31,
2000

1999

1998

Domestic
Latin America
Europe
Pacific

$ 13,881
2,907
2,338
577

$ 12,563
2,697
1,984
486

$ 12,262
2,830
2,039
385

Total consolidated revenues

$ 19,703

$ 17,730

$ 17,516

The Company attributes operating revenues by

geographic region based upon the origin and destination of each flight segment. The Companys tangible
assets consist primarily of flight equipment which is
mobile across geographic markets and, therefore, has
not been allocated.

31

1 4 . Q U A R T E R LY F I N A N C I A L D AT A ( U N A U D I T E D )

Unaudited summarized financial data by quarter for 2000 and 1999 (in millions, except per share amounts):

2000
Operating revenues
Operating income
Income from continuing operations
before extraordinary loss
Net earnings
Earnings per share:
Basic
From continuing operations
before extraordinary loss
Net earnings
Diluted
From continuing operations
before extraordinary loss
Net earnings
1999
Operating revenues
Operating income
Income from continuing operations
Net earnings
Earnings per share:
Basic
From continuing operations
Net earnings
Diluted
From continuing operations
Net earnings

During the second quarter of 2000, the Company

recorded an after-tax gain of approximately $36 million
from the sale of the Companys 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 aftertax charge of approximately $35 million for the Companys 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 Companys 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

32

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$ 4,577
212

$ 5,011
517

$ 5,256
572

$ 4,859
80

89
132

321
321

322
313

47
47

0.60
0.89

2.15
2.15

2.14
2.08

0.31
0.31

0.57
0.86

1.96
1.96

1.96
1.91

0.29
0.29

$ 4,007
46
17
158

$ 4,541
414
216
268

$ 4,695
426
213
279

$ 4,487
270
210
280

0.11
0.99

1.41
1.76

1.42
1.86

1.42
1.89

0.11
0.96

1.36
1.70

1.38
1.76

1.37
1.84

following: (i) a $25 million after-tax gain related to the

Companys sale of its investment in the preferred stock
of Canadian and a $67 million tax benefit resulting from
the tax loss on the Companys investment in Canadian
(see Note 2), (ii) an after-tax gain of approximately
$81 million related to the sale of a portion of the
Companys 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.

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
has 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 TWAs obligations.
The Companys 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 Companys 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 TWAs 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 TWAs 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, TWAs board selected the Companys 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 TWAs assets to the Company. Consummation of the transaction is subject to
several contingencies, including the waiver by TWAs
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 Courts 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 Americans

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 Americans 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. Americans 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.

33

REPORT

OF

THE BOARD

INDEPENDENT AUDITORS

OF

DIRECTORS

AND

STOCKHOLDERS

A M R C O R P O R AT I O N

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 Companys 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.

34

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.

2121 San Jacinto

Dallas, Texas 75201
January 16, 2001, except for
Note 15, for which the
date is March 19, 2001.

REPORT

OF

MANAGEMENT

The management of AMR Corporation is responsible for

the integrity and objectivity of the Companys financial
statements and related information. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States
and reflect certain estimates and judgments of management as to matters set forth therein.
AMR maintains a system of internal controls
designed to provide reasonable assurance, at reasonable
cost, that its financial records can be relied upon in the
preparation of financial statements and that its assets
are safeguarded against loss or unauthorized use. An
important element of the Companys control systems
is the ongoing program to promote control consciousness throughout the organization. Managements commitment to the program is evidenced by organizational
arrangements that provide for divisions of responsibility,
effective communication of policies and procedures,
selection of competent financial managers and development and maintenance of financial planning and reporting systems.
Management continually monitors the system for
compliance. AMR maintains a strong internal auditing
program that independently assesses the effectiveness
of the internal controls and recommends possible
improvements. Ernst & Young, independent auditors, is
engaged to audit the Companys financial statements.
Ernst & Young obtains and maintains an understanding
of the internal control structure and conducts such tests

and other auditing procedures considered necessary in

the circumstances to render the opinion on the financial
statements contained in their report.
The Audit Committee of the Board of Directors,
composed entirely of independent directors, meets regularly with the independent auditors, management and
internal auditors to review their work and confirm that
they are properly discharging their responsibilities. In
addition, the independent auditors and the internal
auditors meet periodically with the Audit Committee,
without the presence of management, to discuss the
results of their work and other relevant matters.

Donald J. Carty
Chairman, President and
Chief Executive Officer

Thomas W. Horton
Senior Vice President and
Chief Financial Officer

35

E L E V E N Y E A R C O M P A R AT I V E S U M M A R Y

2000

(in millions, except share and per share amounts)

1999

1998*

Total operating revenues

$ 19,703

17,730

17,516

Total operating expenses

$ 18,322

16,574

15,528

Operating income (loss)

1,381

1,156

1,988

779

656

1,114

813

985

1,314

Basic

5.20

4.30

6.60

Diluted

4.81

4.17

6.38

Basic

5.43

6.46

7.78

Diluted

5.03

6.26

7.52

Total assets

$ 26,213

24,374

21,455

Long-term debt, less current maturities

4,078

2,436

Earnings (loss) from continuing operations before

extraordinary loss and cumulative effect of accounting changes
Net earnings (loss)
Earnings (loss) per common share from continuing operations
before extraordinary loss and cumulative effect of accounting changes:2

Net earnings (loss) per common share:2

4,151

Obligations under capital leases, less current obligations

1,323

1,611

1,764

Convertible preferred stock, common stock and other stockholders equity1

7,176

6,858

6,698

152,100

148,250

161,300

47.18

46.26

41.53

Common shares outstanding at year-end (in thousands)2

Book value per common share2

Preferred shares outstanding at year-end:

Convertible preferred stock
* The results for 1998 and 1997 have been restated for discontinued operations.
1
2

No dividends have been paid on common stock for any period presented.
All share and earnings per share amounts prior to 1998 have been restated to give effect to the stock split on June 9, 1998.

36

1997*

1996

1995

1994

1993

1992

1991

1990

16,957

17,364

16,910

16,137

15,816

14,396

12,887

11,720

15,362

15,557

15,895

15,131

15,126

14,421

12,882

11,596

1,595

1,807

1,015

1,006

690

(25)

124

809

1,083

191

228

(96)

(475)

(240)

(40)

985

1,016

162

228

(110)

(935)

(240)

(40)

4.54

6.29

1.25

2.26

(1.02)

(3.17)

(1.77)

(0.32)

4.43

5.95

1.24

2.25

(1.02)

(3.17)

(1.77)

(0.32)

5.52

5.90

1.06

2.26

(1.12)

(6.24)

(1.77)

(0.32)

5.39

5.59

1.05

2.25

(1.12)

(6.24)

(1.77)

(0.32)

20,287

20,451

19,556

19,486

19,326

18,706

16,208

13,354

2,248

2,737

4,983

5,603

5,431

5,643

3,951

1,674

1,629

1,790

2,069

2,275

2,123

2,195

1,928

1,598

6,216

5,668

3,720

3,380

4,276

3,349

3,794

3,727

173,200

182,000

152,800

151,800

151,536

150,812

136,726

124,622

35.89

31.14

23.83

21.75

21.08

22.20

27.75

29.91

159,000

159,000

2,200,000

37

BOARD

BOARD

OF

OF

DIRECTORS

DIRECTORS

David L. Boren

President
University of Oklahoma
(Educational Institution)
Norman, Oklahoma
Elected in 1994

Ann McLaughlin Korologos

Chairman Emeritus
The Aspen Institute
(Educational and Public Policy
Organization)
Aspen, Colorado
Elected in 1990

BOARD COMMITTEES
EXECUTIVE COMMITTEE

Donald J. Carty, Chairman

David L. Boren
Earl G. Graves
Michael A. Miles
Philip J. Purcell

Michael A. Miles
Edward A. Brennan

Retired Chairman, President

and Chief Executive Officer
Sears, Roebuck and Co.
(Merchandising)
Chicago, Illinois
Elected in 1987
Donald J. Carty

Chairman, President and

Chief Executive Officer
AMR Corporation/
American Airlines, Inc.
(Air Transportation)
Fort Worth, Texas
Elected in 1998
Armando M. Codina

Chairman and Chief Executive Officer

Codina Group, Inc.
(Real Estate Investments,
Development and Construction,
Property Management
and Brokerage Services)
Coral Gables, Florida
Elected in 1995

Special Limited Partner

Forstmann Little & Co.
(Investment Banking)
Lake Forest, Illinois
Elected in 2000

Ann McLaughlin Korologos, Chairman

Armando M. Codina
Charles H. Pistor, Jr.
Joe M. Rodgers
Judith Rodin

Charles H. Pistor, Jr.

Retired Vice Chair

Southern Methodist University
(Educational Institution)
Dallas, Texas
Elected in 1982
Philip J. Purcell

Chairman and Chief Executive Officer

Morgan Stanley Dean Witter & Co.
(Financial Services)
New York, New York
Elected in 2000
Joe M. Rodgers

Chairman
The JMR Group
(Investment Company)
Nashville, Tennessee
Elected in 1989

Earl G. Graves

Judith Rodin

Chairman and Chief Executive Officer

Earl G. Graves, Limited
(Communications and Publishing)
Publisher and Chief Executive Officer
Black Enterprise Magazine
General Partner Black
Enterprise/Greenwich Street
Corporate Growth Partners, L.P.
New York, New York
Elected in 1995

President
University of Pennsylvania
(Educational Institution)
Philadelphia, Pennsylvania
Elected in 1997

38

AUDIT COMMITTEE

COMPENSATION/NOMINATING COMMITTEE

Edward A. Brennan, Chairman

Armando M. Codina
Michael A. Miles
Charles H. Pistor, Jr.
Joe M. Rodgers
Judith Rodin
GOVERNANCE COMMITTEE

Edward A. Brennan, Chairman

David L. Boren
Earl G. Graves
Ann McLaughlin Korologos
Philip J. Purcell
There is an Executive Committee of American
Airlines Board of Directors which is identical to
the AMR Executive Committee.

MANAGEMENT DIVISIONS

AND

SUBISDIARIES

AMERICAN AIRLINES, INC.

Timothy J. Ahern

Thomas R. Del Valle

Robert E. Olson

Donald J. Carty*

Vice President
Safety, Security and
Environmental

Vice President
Customer Service

Vice President
Revenue Management

Bernard J. DeSena

Randy H. Phillips

Vice President
Chicago

Vice President
Engineering and Quality
Assurance

Chairman, President and

Chief Executive Officer

Jane G. Allen
Robert W. Baker*

Vice Chairman

Vice President
Flight Service

Gerard J. Arpey*

A. Jaynne Allison

Executive Vice President

Operations

Vice President
Human Resources

Daniel P. Garton*

Walter J. Aue

Executive Vice President

Customer Service

Vice President
Capacity Planning

Timothy J. Doke

Vice President
Corporate Communications

Ralph L. Richardi

Bella D. Goren

Vice President
Operations Planning
and Performance

Vice President
Customer Service Planning

Carmine J. Romano

William T. Greene

Vice President
Tulsa Base Maintenance

Michael W. Gunn*

James A. Beer

Executive Vice President

Marketing and Planning

Vice President
Corporate Development
and Treasurer

Vice President
Finance and Planning
for Maintenance
and Engineering

David R. Brooks

Gregory F. Hall

Peggy E. Sterling

President
American Airlines
Cargo Division

Vice President
Line Maintenance

Vice President
Dallas/Fort Worth

Douglas G. Herring

Arthur J. Torno

Vice President and

Controller

Vice President
Caribbean and
Latin America Operations

John R. Samuel

Vice President
e-Business

Peter J. Dolara

Senior Vice President

Miami, Caribbean and
Latin America
Monte E. Ford

Senior Vice President

Information Technology
and Chief Information
Officer

Jeffrey J. Brundage

Vice President
Employee Relations

Gary F. Kennedy
David L. Campbell

Thomas W. Horton*

Senior Vice President

Finance and Chief
Financial Officer

Vice President
Alliance Base
Maintenance

Vice President
Corporate Real Estate

AMERICAN EAGLE AIRLINES, INC.

Peter M. Bowler
Craig S. Kreeger

President

Jeffrey C. Campbell

Vice President and

General Sales Manager

Thomas F. Bacon

Vice President
Europe

Robert P. Kudwa

Senior Vice President

Marketing and Planning

John A. Carpenter

Vice President
Flight

Robert W. Reding

Henry C. Joyner

Vice President
Corporate Affairs

Dennis LeBright

Senior Vice President

Planning

William Culhane

Vice President
Miami

Dan P. Huffman

Senior Vice President

Maintenance and
Engineering

Anne H. McNamara*

Senior Vice President and

General Counsel

Vice President
Maintenance and
Engineering Negotiations

Chief Operations Officer

Carolyn E. Wright

Senior Vice President

Customer Service

John R. MacLean

Vice President
Purchasing

AADVANTAGE MARKETING
PROGRAMS DIVISION

Charles D. MarLett*

Bruce T. Chemel

Corporate Secretary

President

Scott D. Nason

AMR INVESTMENT
SERVICES, INC.

Lauri L. Curtis
Susan M. Oliver

Senior Vice President

Human Resources

Vice President
Reservations/Travel Centers/
Ticket Delivery Service

William K. Ris, Jr.

C. David Cush

Senior Vice President

Government Affairs

Vice President
International Planning
and Alliances

Vice President
Research and Analysis

William F. Quinn

President

* Also AMR Corporation Officers

39

C O R P O R AT E I N F O R M AT I O N

STOCK EXCHANGES

9%, 9.88%

The AMR Corporation Trading Symbol is AMR. The

common stock of AMR Corporation is listed for trading
on the New York Stock Exchange. The common stock
is also traded unlisted on the Pacific Stock Exchange.

Trustee & Paying Agent

FORM 10-K

9 1 2 % N O T E S A N D 9 3 4 % , 9 . 8 % A N D
10% DEBENTURES AND 7.875%
PUBLIC INCOME NOTES

A copy of the AMR Corporation Annual Report

to the Securities and Exchange Commission for
2000 (Form 10-K) will be furnished without charge
upon written request to:
Corporate Secretary

AMR Corporation
Mail Drop 5675
P.O. Box 619616
Dallas/Fort Worth Airport, TX 75261-9616
COMMON STOCK

Transfer Agent & Registrar

First Chicago Trust Co., A Division of Equiserve

P.O. Box 2500
Jersey City, NJ 07303-2500
(201) 324-1225
MEDIUM TERM NOTES

Trustees

The Bank of New York

101 Barclay Street
New York, NY 10286
Citibank, N.A.
111 Wall Street
New York, NY 10043
Paying Agents

Chase Manhattan Bank

Corporate Trust Securities Window
Room 234 North Building
55 Water Street
New York, NY 10041
Citibank, N.A.
111 Wall Street
New York, NY 10043

40

AND

10.20% DEBENTURES

The Bank of New York

101 Barclay Street
New York, NY 10286

Trustee & Paying Agent

Citibank, N.A.
111 Wall Street
New York, NY 10043
9% DEBENTURES

Trustee & Paying Agent

U.S. Bank Trust, N.A.

100 Wall Street, Suite 1600
New York, NY 10005
P R I N C I PA L O F F I C E S

AMR Corporation
Mail Drop 5675
P.O. Box 619616
Dallas/Fort Worth Airport, TX 75261-9616
(817) 963-1234

MARKET PRICE

AND

DIVIDENDS

Common Stock*
High

Low

$ 67 38
37 78
34 1116
39 316

$ 30
26 716
26 18
27 1516

16
16
3
4
1
2

$ 53 316
60 916
52 1316
53 916

2000**

1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
1999

1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
*

$ 71
74
72
68

7
5

No dividends were paid during the periods.

** 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 AMRs shareholders. As a result of
the dividend, AMRs stock price was adjusted from $60 916 to $25 916 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.

Shareholders can also visit AMRs Internet site on the World Wide Web at [Link] to
receive financial and other company information, or to request a printed copy of financial materials.
Additionally, shareholders in the United States, Canada and most of the Caribbean can call
(800) AMR-6177 to hear the most recent quarterly results or request a printed copy of financial
materials. Shareholders residing in other areas should call (402) 573-9855.

2001 quarterly results will be released on the following dates with the shareholder information line
and Web site updated shortly thereafter:
First Quarter:

April 18, 2001

Second Quarter:

July 18, 2001

Third Quarter:

October 17, 2001

Fourth Quarter:

January 16, 2002

AMR C O R P O R AT I O N

P. O . B O X 6 1 9 6 1 6 , D A L L A S / F O R T W O R T H , T E X A S 7 5 2 6 1 - 9 6 1 6

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