UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended June 30, 2015
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period From to
Commission file number 1-8400
American Airlines Group Inc.
(Exact name of registrant as specified in its charter)
Delaware | 75-1825172 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
4333 Amon Carter Blvd., Fort Worth, Texas 76155 | (817) 963-1234 | |
(Address of principal executive offices, including zip code) | (Registrants telephone number, including area code) |
Commission file number 1-2691
American Airlines, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 13-1502798 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
4333 Amon Carter Blvd., Fort Worth, Texas 76155 | (817) 963-1234 | |
(Address of principal executive offices, including zip code) | (Registrants telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
American Airlines Group Inc. |
x Yes |
¨ No | ||
American Airlines, Inc. |
x Yes |
¨ No |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
American Airlines Group Inc. |
x Yes |
¨ No | ||
American Airlines, Inc. |
x Yes |
¨ No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
American Airlines Group Inc. |
x Large Accelerated Filer |
¨ Accelerated Filer |
¨ Non-accelerated Filer |
¨ Smaller Reporting Company | ||||
American Airlines, Inc. |
¨ Large Accelerated Filer |
¨ Accelerated Filer |
x Non-accelerated Filer |
¨ Smaller Reporting Company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
American Airlines Group Inc. |
¨ Yes |
x No | ||
American Airlines, Inc. |
¨ Yes |
x No |
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
American Airlines Group Inc. |
x Yes |
¨ No | ||
American Airlines, Inc. |
x Yes |
¨ No |
As of July 17, 2015, there were 671,820,576 shares of American Airlines Group Inc. common stock outstanding.
As of July 17, 2015, there were 1,000 shares of American Airlines, Inc. common stock outstanding, all of which were held by American Airlines Group Inc.
American Airlines Group Inc.
American Airlines, Inc.
Form 10-Q
Quarterly Period Ended June 30, 2015
Page | ||||||
PART I: FINANCIAL INFORMATION | ||||||
Item 1A. |
Condensed Consolidated Financial Statements of American Airlines Group Inc. |
6 | ||||
6 | ||||||
7 | ||||||
8 | ||||||
9 | ||||||
10 | ||||||
Item 1B. |
Condensed Consolidated Financial Statements of American Airlines, Inc. |
36 | ||||
36 | ||||||
37 | ||||||
38 | ||||||
39 | ||||||
40 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
51 | ||||
Item 3. |
78 | |||||
Item 4. |
80 | |||||
PART II: OTHER INFORMATION | ||||||
Item 1. |
81 | |||||
Item 1A. |
82 | |||||
Item 2. |
99 | |||||
Item 6. |
99 | |||||
100 |
2
This combined Quarterly Report on Form 10-Q is filed by American Airlines Group Inc. (formerly named AMR Corporation) (AAG) and its wholly-owned subsidiary American Airlines, Inc. (American). References in this Quarterly Report on Form 10-Q to we, us, our, the Company and similar terms refer to AAG and its consolidated subsidiaries. As more fully described below, on December 9, 2013, a subsidiary of AMR Corporation merged with and into US Airways Group, Inc. (US Airways Group), which survived as a wholly-owned subsidiary of AAG (the Merger). AMR or AMR Corporation refers to the Company during the period of time prior to its emergence from Chapter 11 and its acquisition of US Airways Group. References in this Quarterly Report on Form 10-Q to mainline refer to the operations of American and US Airways, Inc., as applicable, and exclude regional operations.
Note Concerning Forward-Looking Statements
Certain of the statements contained in this report should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as may, will, expect, intend, anticipate, believe, estimate, plan, project, could, should, would, continue, seek, target, guidance, outlook, if current trends continue, optimistic, forecast and other similar words. Such statements include, but are not limited to, statements about the benefits of the Merger, including future financial and operating results, our plans, objectives, expectations and intentions, and other statements that are not historical facts, such as, without limitation, statements that discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. These forward-looking statements are based on our current objectives, beliefs and expectations, and they are subject to significant risks and uncertainties that may cause actual results and financial position and timing of certain events to differ materially from the information in the forward-looking statements. These risks and uncertainties include, but are not limited to, those described below under Part II, Item 1A. Risk Factors and the following: significant operating losses in the future; downturns in economic conditions that adversely affect our business; the impact of continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel; competitive practices in the industry, including the impact of low cost carriers, airline alliances and industry consolidation; the challenges and costs of integrating operations and realizing anticipated synergies and other benefits of the Merger; our substantial indebtedness and other obligations and the effect they could have on our business and liquidity; an inability to obtain sufficient financing or other capital to operate successfully and in accordance with our current business plan; increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates; the effect our high level of fixed obligations may have on our ability to fund general corporate requirements, obtain additional financing and respond to competitive developments and adverse economic and industry conditions; our significant pension and other post-employment benefit funding obligations; the impact of any failure to comply with the covenants contained in financing arrangements; provisions in credit card processing and other commercial agreements that may materially reduce our liquidity; the impact of union disputes, employee strikes and other labor-related disruptions; any inability to maintain labor costs at competitive levels; interruptions or disruptions in service at one or more of our hub airports; costs of ongoing data security compliance requirements and the impact of any significant data security breach; any inability to obtain and maintain adequate facilities, infrastructure and Slots to operate our flight schedule and expand or change our route network; our reliance on third-party regional operators or third-party service providers that have the ability to affect our revenue and the publics perception about our services; any inability to effectively manage the costs, rights and functionality of third-party distribution channels on which we rely; extensive government regulation, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel, and competitive disadvantages; the impact of the heavy taxation on the airline industry; changes to our business model that may not successfully increase revenues and may cause operational difficulties or decreased demand; the loss of key personnel or inability to attract and retain additional qualified personnel; the impact of conflicts overseas, terrorist attacks and ongoing security concerns; the global scope of our business and any associated economic and political instability or adverse effects of events, circumstances or government actions beyond our control, including the impact of foreign currency exchange rate fluctuations and limitations on the repatriation of cash held in foreign countries; the impact of environmental regulation; our reliance on technology and automated systems and the impact of any failure of these technologies or systems; challenges in integrating our computer, communications and other technology systems; losses and adverse publicity stemming from any accident involving any of our aircraft or the aircraft of our regional or codeshare operators; delays in scheduled aircraft deliveries, or other loss of anticipated fleet capacity, and failure of new aircraft to perform as expected; our dependence on a limited number of suppliers for aircraft, aircraft engines and parts; the impact of changing economic and other conditions beyond our control, including global events that affect travel behavior such as an outbreak of a contagious disease, and volatility and fluctuations in our results of operations due to seasonality; the effect of a higher than normal number of pilot retirements and a potential shortage of pilots; the impact of possible future increases in insurance costs or reductions in available insurance coverage; the effect of a lawsuit that was filed in connection with the Merger remains pending; an inability to use net operating losses (NOLs) carried over from prior taxable years (NOL Carryforwards); any impairment in the amount of goodwill we recorded as a result of the application of the acquisition method of accounting and an inability to realize the full value of AAGs and Americans respective intangible or long-lived assets and any material impairment charges that would be recorded as a result; price volatility of our common stock; the effects of our capital deployment program and the limitation, suspension or discontinuation of our share repurchase program or dividend payments thereunder; delay or prevention of stockholders ability to change the composition of our Board of Directors and the effect this may have on takeover attempts that some of our stockholders might consider beneficial; the effect of provisions of our Restated Certificate
3
of Incorporation (the Certificate of Incorporation) and Amended and Restated Bylaws (the Bylaws) that limit ownership and voting of our equity interests, including our common stock; the effect of limitations in our Certificate of Incorporation on acquisitions and dispositions of our common stock designed to protect our NOL Carryforwards and certain other tax attributes, which may limit the liquidity of our common stock; other economic, business, competitive, and/or regulatory factors affecting our business, including those set forth in this Quarterly Report on Form 10-Q (especially in Part II, Item 1A. Risk Factors and Part I, Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations) and in our other filings with the Securities and Exchange Commission (the SEC), and other risks and uncertainties listed from time to time in our filings with the SEC.
All of the forward-looking statements are qualified in their entirety by reference to the factors discussed in Part II, Item 1A. Risk Factors and elsewhere in this report. There may be other factors of which we are not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. We do not assume any obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting such statements other than as required by law. Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q or as of the dates indicated in the statements.
4
This combined Quarterly Report on Form 10-Q is filed by both AAG and American and includes the condensed consolidated financial statements of each company in Item 1A and Item 1B, respectively.
5
ITEM 1A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except shares and per share amounts)(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Operating revenues: |
||||||||||||||||
Mainline passenger |
$ | 7,655 | $ | 8,213 | $ | 14,644 | $ | 15,471 | ||||||||
Regional passenger |
1,759 | 1,707 | 3,211 | 3,114 | ||||||||||||
Cargo |
194 | 221 | 388 | 428 | ||||||||||||
Other |
1,219 | 1,214 | 2,411 | 2,338 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating revenues |
10,827 | 11,355 | 20,654 | 21,351 | ||||||||||||
Operating expenses: |
||||||||||||||||
Aircraft fuel and related taxes |
1,774 | 2,830 | 3,318 | 5,541 | ||||||||||||
Salaries, wages and benefits |
2,364 | 2,163 | 4,737 | 4,282 | ||||||||||||
Regional expenses |
1,557 | 1,657 | 3,019 | 3,251 | ||||||||||||
Maintenance, materials and repairs |
502 | 514 | 995 | 999 | ||||||||||||
Other rent and landing fees |
451 | 441 | 859 | 866 | ||||||||||||
Aircraft rent |
316 | 312 | 633 | 631 | ||||||||||||
Selling expenses |
350 | 402 | 686 | 804 | ||||||||||||
Depreciation and amortization |
340 | 319 | 676 | 626 | ||||||||||||
Special items, net |
144 | 251 | 447 | 114 | ||||||||||||
Other |
1,108 | 1,067 | 2,147 | 2,108 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
8,906 | 9,956 | 17,517 | 19,222 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Operating income |
1,921 | 1,399 | 3,137 | 2,129 | ||||||||||||
Nonoperating income (expense): |
||||||||||||||||
Interest income |
10 | 8 | 19 | 15 | ||||||||||||
Interest expense, net of capitalized interest |
(223 | ) | (214 | ) | (432 | ) | (457 | ) | ||||||||
Other, net |
11 | 11 | (62 | ) | 9 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total nonoperating expense, net |
(202 | ) | (195 | ) | (475 | ) | (433 | ) | ||||||||
|
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|
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|
|
|
|
|||||||||
Income before income taxes |
1,719 | 1,204 | 2,662 | 1,696 | ||||||||||||
Income tax provision |
15 | 340 | 26 | 353 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Net income |
$ | 1,704 | $ | 864 | $ | 2,636 | $ | 1,343 | ||||||||
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|
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Earnings per share: |
||||||||||||||||
Basic |
$ | 2.47 | $ | 1.20 | $ | 3.81 | $ | 1.86 | ||||||||
Diluted |
$ | 2.41 | $ | 1.17 | $ | 3.70 | $ | 1.82 | ||||||||
Weighted average shares outstanding (in thousands): |
||||||||||||||||
Basic |
688,727 | 720,600 | 692,571 | 722,286 | ||||||||||||
Diluted |
707,611 | 734,767 | 712,270 | 738,051 | ||||||||||||
Cash dividends declared per common share |
$ | 0.10 | $ | | $ | 0.20 | $ | |
See accompanying notes to condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net income |
$ | 1,704 | $ | 864 | $ | 2,636 | $ | 1,343 | ||||||||
Other comprehensive income (loss), before tax: |
||||||||||||||||
Defined benefit pension plans and retiree medical |
(26 | ) | (59 | ) | (52 | ) | (104 | ) | ||||||||
Derivative financial instruments: |
||||||||||||||||
Change in fair value |
| 13 | | (54 | ) | |||||||||||
Reclassification into earnings |
(3 | ) | 5 | (9 | ) | 12 | ||||||||||
Unrealized gain (loss) on investments: |
||||||||||||||||
Net change in value |
(1 | ) | | | 2 | |||||||||||
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|
|
|
|
|
|
|
|||||||||
Other comprehensive loss before tax |
(30 | ) | (41 | ) | (61 | ) | (144 | ) | ||||||||
Reversal of non-cash tax provision |
| 330 | | 330 | ||||||||||||
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Comprehensive income |
$ | 1,674 | $ | 1,153 | $ | 2,575 | $ | 1,529 | ||||||||
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|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
7
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except shares and per share amounts)
June 30, 2015 | December 31, 2014 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash |
$ | 952 | $ | 994 | ||||
Short-term investments |
7,967 | 6,309 | ||||||
Restricted cash and short-term investments |
747 | 774 | ||||||
Accounts receivable, net |
1,892 | 1,771 | ||||||
Aircraft fuel, spare parts and supplies, net |
1,069 | 1,004 | ||||||
Prepaid expenses and other |
1,482 | 1,260 | ||||||
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|
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Total current assets |
14,109 | 12,112 | ||||||
Operating property and equipment |
||||||||
Flight equipment |
30,829 | 28,213 | ||||||
Ground property and equipment |
6,132 | 5,900 | ||||||
Equipment purchase deposits |
1,124 | 1,230 | ||||||
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Total property and equipment, at cost |
38,085 | 35,343 | ||||||
Less accumulated depreciation and amortization |
(12,797 | ) | (12,259 | ) | ||||
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|
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Total property and equipment, net |
25,288 | 23,084 | ||||||
Other assets |
||||||||
Goodwill |
4,091 | 4,091 | ||||||
Intangibles, net of accumulated amortization of $478 and $447, respectively |
2,274 | 2,240 | ||||||
Other assets |
2,106 | 2,244 | ||||||
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Total other assets |
8,471 | 8,575 | ||||||
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Total assets |
$ | 47,868 | $ | 43,771 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Current maturities of long-term debt and capital leases |
$ | 1,642 | $ | 1,708 | ||||
Accounts payable |
1,683 | 1,377 | ||||||
Accrued salaries and wages |
1,040 | 1,194 | ||||||
Air traffic liability |
5,664 | 4,252 | ||||||
Frequent flyer liability |
2,745 | 2,807 | ||||||
Other accrued liabilities |
2,271 | 2,097 | ||||||
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Total current liabilities |
15,045 | 13,435 | ||||||
Noncurrent liabilities |
||||||||
Long-term debt and capital leases, net of current maturities |
17,152 | 16,196 | ||||||
Pension and postretirement benefits |
7,477 | 7,562 | ||||||
Deferred gains and credits, net |
746 | 829 | ||||||
Bankruptcy settlement obligations |
208 | 325 | ||||||
Other liabilities |
3,604 | 3,403 | ||||||
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|
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Total noncurrent liabilities |
29,187 | 28,315 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity |
||||||||
Common stock, $0.01 par value; 1,750,000,000 shares authorized, 678,288,983 shares issued and outstanding at June 30, 2015; 697,474,535 shares issued and outstanding at December 31, 2014 |
7 | 7 | ||||||
Additional paid-in capital |
14,319 | 15,135 | ||||||
Accumulated other comprehensive loss |
(4,620 | ) | (4,559 | ) | ||||
Accumulated deficit |
(6,070 | ) | (8,562 | ) | ||||
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Total stockholders equity |
3,636 | 2,021 | ||||||
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|
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Total liabilities and stockholders equity |
$ | 47,868 | $ | 43,771 | ||||
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|
|
|
See accompanying notes to condensed consolidated financial statements.
8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)(Unaudited)
Six Months Ended June 30, | ||||||||
2015 | 2014 | |||||||
Net cash provided by operating activities |
$ | 4,841 | $ | 2,637 | ||||
Cash flows from investing activities: |
||||||||
Capital expenditures and aircraft purchase deposits |
(3,139 | ) | (2,678 | ) | ||||
Purchases of short-term investments |
(5,093 | ) | (1,861 | ) | ||||
Sales of short-term investments |
3,436 | 1,723 | ||||||
Decrease in restricted cash and short-term investments |
27 | 153 | ||||||
Net proceeds from slot transaction |
| 307 | ||||||
Proceeds from sale of an investment |
52 | | ||||||
Proceeds from sale of property and equipment |
22 | 9 | ||||||
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|
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Net cash used in investing activities |
(4,695 | ) | (2,347 | ) | ||||
Cash flows from financing activities: |
||||||||
Payments on long-term debt and capital leases |
(1,107 | ) | (1,145 | ) | ||||
Proceeds from issuance of long-term debt |
1,996 | 534 | ||||||
Deferred financing costs |
(40 | ) | (7 | ) | ||||
Sale-leaseback transactions |
| 411 | ||||||
Exercise of stock options |
| 9 | ||||||
Treasury stock repurchases |
(931 | ) | (28 | ) | ||||
Dividend payment |
(140 | ) | | |||||
Other financing activities |
34 | 6 | ||||||
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|
|||||
Net cash used in financing activities |
(188 | ) | (220 | ) | ||||
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|
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Net increase (decrease) in cash |
(42 | ) | 70 | |||||
Cash at beginning of period |
994 | 1,140 | ||||||
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Cash at end of period |
$ | 952 | $ | 1,210 | ||||
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Non-cash investing and financing activities: |
||||||||
Settlement of bankruptcy obligations |
$ | 35 | $ | 5,362 | ||||
Capital lease obligations |
5 | 361 | ||||||
Supplemental information: |
||||||||
Interest paid, net of amounts capitalized |
433 | 367 | ||||||
Income taxes paid |
10 | 5 |
See accompanying notes to condensed consolidated financial statements.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of American Airlines Group Inc. (AAG or the Company) should be read in conjunction with the consolidated financial statements contained in AAGs Annual Report on Form 10-K for the year ended December 31, 2014. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Principal subsidiaries include American Airlines, Inc. (American) and US Airways Group, Inc. (US Airways Group). All significant intercompany transactions have been eliminated.
On December 9, 2013 (the Effective Date), AMR Merger Sub, Inc. (Merger Sub) merged with and into US Airways Group (the Merger), with US Airways Group surviving as a wholly-owned subsidiary of AAG, a Delaware corporation (formerly known as AMR Corporation) following the Merger. AMR or AMR Corporation refers to the Company during the period of time prior to its emergence from Chapter 11 and the Effective Date of the Merger.
Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented. The preparation of financial statements in accordance with accounting principles generally accepted in the United States (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of goodwill, impairment of long-lived and intangible assets, the frequent flyer program, pensions, retiree medical and other benefits and the deferred tax asset valuation allowance.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services. ASU 2014-09 is effective for public entities for interim and annual reporting periods beginning after December 15, 2016. On July 9, 2015, the FASB deferred the effective date of this new standard to December 15, 2017 for public entities. Early application is permitted, but not before interim and annual reporting periods beginning after December 15, 2016. Entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. The Company is currently evaluating the requirements of ASU 2014-09 and has not yet determined its impact on the Companys condensed consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. ASU 2015-03 is not expected to have a material impact on the Companys condensed consolidated financial statements.
2. Emergence from Chapter 11 and Merger with US Airways Group
Chapter 11 Reorganization
On November 29, 2011 (the Petition Date), AMR Corporation (AMR, renamed American Airlines Group Inc., upon the closing of the Merger), its principal subsidiary, American, and certain of AMRs other direct and indirect domestic subsidiaries (collectively, the Debtors), filed voluntary petitions for relief (the Chapter 11 Cases) under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). On October 21, 2013, the Bankruptcy Court entered an order (the Confirmation Order) approving and confirming the Debtors fourth amended joint plan of reorganization (as amended, the Plan).
On the Effective Date, the Debtors consummated their reorganization pursuant to the Plan, principally through the transactions contemplated by an Agreement and Plan of Merger (as amended, the Merger Agreement), dated as of February 13, 2013, by and among AMR, Merger Sub and US Airways Group, pursuant to which Merger Sub merged with and into US Airways Group, with US Airways Group surviving as a wholly-owned subsidiary of the Company following the Merger.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, all actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the U.S. Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the U.S. Bankruptcy Court to the extent the parties to such litigation have obtained relief from the permanent injunction.
In connection with the Chapter 11 Cases, trading in AMRs common stock and certain debt securities on the New York Stock Exchange (NYSE) was suspended on January 5, 2012, and AMRs common stock and such debt securities were delisted by the SEC from the NYSE on January 30, 2012. On January 5, 2012, AMRs common stock began trading under the symbol AAMRQ (CUSIP 001765106) on the OTCQB marketplace, operated by OTC Markets Group. Pursuant to the Plan, on the Effective Date (i) all existing shares of AAGs old common stock formerly traded under the symbol AAMRQ were canceled and (ii) the Company was authorized to issue up to approximately 544 million shares of common stock, par value $0.01 per share, of AAG (AAG Common Stock) by operation of the Plan (excluding shares of AAG Common Stock issuable pursuant to the Merger Agreement). On the Effective Date, the AAG Common Stock was listed on the NASDAQ Global Select Market under the symbol AAL, and AAMRQ ceased trading on the OTCQB marketplace.
Upon emergence from Chapter 11, AAG issued approximately 53 million shares of AAG Common Stock to AMRs old equity holders and certain of the Debtors employees, and issued 168 million shares of AAG Series A Convertible Preferred Stock, par value $0.01 per share (the AAG Series A Preferred Stock), which was mandatorily convertible into new AAG Common Stock during the 120-day period after the Effective Date, to certain creditors and employees of the Debtors (including shares deposited in the Disputed Claims Reserve (as defined in the Plan)). In accordance with the terms of the Plan, former holders of AMR common stock (previously traded under the symbol AAMRQ) received, for each share of AMR common stock, an initial distribution of approximately 0.0665 shares of the AAG Common Stock as of the Effective Date. Following the Effective Date, former holders of AMR common stock and those deemed to be treated as such in connection with the elections made pursuant to the Plan have received through December 31, 2014, additional aggregate distributions of shares of AAG Common Stock of approximately 0.6776 shares of AAG Common Stock for each share of AMR common stock previously held, and may continue to receive additional distributions. As of the Effective Date, the adjusted total Double-Dip General Unsecured Claims (as defined in the Plan) were approximately $2.5 billion and the Allowed Single-Dip General Unsecured Claims (as defined in the Plan) were approximately $2.5 billion.
The Disputed Claims Reserve established under the Plan initially was issued 30.4 million shares, which shares are reserved for distributions to holders of disputed Single-Dip Unsecured Claims (Single-Dip Equity Obligations) whose claims ultimately become allowed as well as to certain AMR labor groups and employees who received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. As of December 31, 2014, the Disputed Claims Reserve held 26.8 million shares of AAG Common Stock pending distribution of those shares in accordance with the Plan. On February 10, 2015, approximately 0.8 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and the Company repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $4 million from the Disputed Claims Reserve at the then-prevailing market price in order to fund cash tax obligations resulting from this distribution. As of June 30, 2015, there were approximately 26.0 million shares of AAG Common Stock remaining in the Disputed Claims Reserve. On July 14, 2015, approximately 0.6 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and the Company repurchased 0.1 million shares of AAG Common Stock for an aggregate of $2 million from the Disputed Claims Reserve at the then-prevailing market price in order to fund cash tax obligations resulting from this distribution. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. To the extent that any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to the Company but rather will be distributed to former AMR shareholders as of the Effective Date. The Company is not required to distribute additional shares above the limits contemplated by the Plan.
Several parties have filed appeals seeking reconsideration of the Confirmation Order. See Note 13 for more information.
The reconciliation process with respect to the remaining claims is expected to take considerable time. The Companys estimate of the amounts of disputed claims that will ultimately become allowed Single-Dip Unsecured Claims are included in bankruptcy settlement obligations on the Companys condensed consolidated balance sheet as of June 30, 2015. As these claims are resolved, or where better information becomes available and is evaluated, the Company will make adjustments to the liabilities recorded on its condensed consolidated financial statements as appropriate. Any such adjustments could be material to the Companys financial position or results of operations in any given period.
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
Merger
Pursuant to the Merger Agreement and consistent with the Plan, each share of common stock, par value $0.01 per share, of US Airways Group (the US Airways Group Common Stock) was converted into the right to receive one share of AAG Common Stock. The aggregate number of shares of AAG Common Stock issuable in the Merger to holders of US Airways Group equity instruments (including stockholders, holders of convertible notes, optionees, and holders of restricted stock units (RSUs)) represented 28% of the diluted equity ownership of AAG. The remaining 72% diluted equity ownership in AAG (up to approximately 544 million shares) was or is distributable, pursuant to the Plan, to stakeholders, labor unions, certain employees of AMR and the other Debtors, and former holders of AMR common stock (previously traded under the symbol AAMRQ) such that the aggregate number of shares of AAG Common Stock issuable under the Plan will not exceed 72% of the diluted equity ownership of AAG as of the time of the Merger.
Availability and Utilization of Net Operating Losses
Upon emergence from bankruptcy, the Debtors experienced an ownership change as defined in Section 382 of the Internal Revenue Code of 1986, as amended (Section 382), which could potentially limit the ability to utilize certain tax attributes including the Debtors substantial net operating losses (NOLs). The general limitation rules for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. The Debtors elected to be covered by certain special rules for federal income tax purposes that permit approximately $9.0 billion of the federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382.
Moreover, an ownership change subsequent to the Debtors emergence from bankruptcy may further limit or effectively eliminate the ability to utilize the Debtors NOL Carryforwards and other tax attributes. To reduce the risk of a potential adverse effect on the Debtors ability to utilize the NOL Carryforwards, AAGs Certificate of Incorporation contains transfer restrictions applicable to certain substantial shareholders. Although the purpose of these transfer restrictions is to prevent an ownership change from occurring, there can be no assurance that an ownership change will not occur even with these transfer restrictions. A copy of AAGs Certificate of Incorporation was attached as Exhibit 3.1 to a Current Report on Form 8-K filed by the Company with the SEC on December 9, 2013.
3. Bankruptcy Settlement Obligations
The components of bankruptcy settlement obligations on the condensed consolidated balance sheets are as follows (in millions):
June 30, 2015 | December 31, 2014 | |||||||
Single-Dip Equity Obligations |
$ | 159 | $ | 248 | ||||
Labor-related deemed claim |
49 | 77 | ||||||
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Total |
$ | 208 | $ | 325 | ||||
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The amount of the remaining Single-Dip Equity Obligations at June 30, 2015 is the Companys estimate of its obligation for disputed claims of $159 million and is calculated based on the fair value of the shares expected to be issued, measured as if the obligations were settled using the closing price of AAG Common Stock at June 30, 2015. Additional allowed claims will receive 30.7553 shares, subject to reduction for expenses of the Disputed Claims Reserve, including tax liabilities, for each $1,000 of allowed claims. For accounting purposes, the value of the shares expected to be issued is marked-to-market each period until issued. Accordingly, changes in the value of AAG Common Stock could result in future increases and decreases in this obligation.
In exchange for employees contributions to the successful reorganization of the Company, including agreeing to reductions in pay and benefits, the Company agreed in the Plan to provide each employee group a deemed claim which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. The fair value based on the expected number of shares to be distributed to satisfy this deemed claim, as adjusted, was approximately $1.5 billion. As of June 30, 2015, the remaining liability to certain AMR labor groups and employees of $49 million represents the estimated fair value of the remaining shares expected to be issued in satisfaction of such obligation, measured as if the obligation was settled using the closing price of AAG Common Stock at June 30, 2015. For accounting purposes, the value of the remaining shares expected to be issued to satisfy the labor claim is marked-to-market each period until issued. Accordingly, changes in the value of AAG Common Stock could result in future increases and decreases in this obligation.
On February 10, 2015 and July 14, 2015, approximately 0.8 million and 0.6 million shares, respectively, of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and 0.1 million shares were withheld or sold on account of related tax obligations.
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
4. Special Items
Special items, net on the condensed consolidated statements of operations are as follows (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Mainline operating special items, net (a) |
$ | 144 | $ | 251 | $ | 447 | $ | 114 |
(a) | The 2015 second quarter mainline operating special items totaled a net charge of $144 million, which principally included $221 million of merger integration expenses related to information technology, professional fees, severance, share-based compensation, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. These charges were offset in part by a net $68 million credit for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations. The 2015 six month period mainline operating special items totaled a net charge of $447 million, which principally included $437 million of merger integration expenses as described above and a net $99 million charge related to the Companys new pilot joint collective bargaining agreement. These charges were offset in part by a net $73 million credit for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations. |
The 2014 second quarter mainline operating special items totaled a net charge of $251 million, which principally included $163 million of merger integration expenses related to information technology, professional fees, severance, share-based compensation, re-branding of aircraft and airport facilities, relocation and training as well as a net $38 million charge for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations and $37 million in charges related to the buyout of leases associated with certain aircraft. The 2014 six month period mainline operating special items totaled a net charge of $114 million, which principally included $365 million of merger integration expenses, $40 million in charges primarily related to the buyout of leases associated with certain aircraft and a net $5 million charge for bankruptcy related items, all as described above. These charges were offset in part by a $309 million gain on the sale of Slots at Ronald Reagan Washington National Airport.
The following additional amounts are also included in the condensed consolidated statements of operations as follows (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Regional operating special items, net (a) |
$ | 10 | $ | 2 | $ | 18 | $ | 6 | ||||||||
Nonoperating special items, net (b) |
(11 | ) | 2 | (19 | ) | 50 | ||||||||||
Income tax special items, net (c) |
7 | 337 | 16 | 345 |
(a) | The 2015 and 2014 second quarter and six month period regional operating special items principally related to merger integration expenses. |
(b) | The 2015 second quarter nonoperating special items totaled a net credit of $11 million and primarily included a $22 million gain associated with the sale of an investment, offset in part by $11 million in charges principally related to non-cash write offs of unamortized debt discount and debt issuance costs associated with refinancing the Companys secured term loan facilities. The 2015 six month period nonoperating special items totaled a net credit of $19 million and principally included the $22 million gain associated with the sale of an investment as described above and a $17 million early debt extinguishment gain associated with the repayment of Americans AAdvantage loan with Citibank. These special credits were offset in part by $20 million in charges principally related to non-cash write offs of unamortized debt discount and debt issuance costs associated with the debt refinancing as described above and the prepayment of certain aircraft financings. |
The 2014 second quarter and six month period nonoperating special items were primarily due to non-cash interest accretion of $2 million and $33 million, respectively, on bankruptcy settlement obligations.
(c) | The 2015 second quarter and six month period tax special items were the result of a non-cash deferred income tax provision related to certain indefinite-lived intangible assets. |
During the 2014 second quarter, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Companys fuel hedging contracts. In accordance with GAAP, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated. In addition, the Company recorded a special $7 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
in the 2014 second quarter. The 2014 six month period included the $330 million non-cash tax provision related to the settlement of fuel hedges discussed above as well as a special $15 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.
5. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (EPS) (in millions, except share and per share amounts in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Basic EPS: |
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Net income |
$ | 1,704 | $ | 864 | $ | 2,636 | $ | 1,343 | ||||||||
Weighted-average common shares outstanding (in thousands) |
688,727 | 720,600 | 692,571 | 722,286 | ||||||||||||
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Basic EPS |
$ | 2.47 | $ | 1.20 | $ | 3.81 | $ | 1.86 | ||||||||
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Diluted EPS: |
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Net income |
$ | 1,704 | $ | 864 | $ | 2,636 | $ | 1,343 | ||||||||
Change in fair value of conversion feature on 7.25% convertible senior notes (a) |
| (2 | ) | | 3 | |||||||||||
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Net income for purposes of computing diluted EPS |
$ | 1,704 | $ | 862 | $ | 2,636 | $ | 1,346 | ||||||||
Share computation for diluted earnings per share (in thousands): |
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Weighted-average shares outstanding |
688,727 | 720,600 | 692,571 | 722,286 | ||||||||||||
Dilutive effect of stock awards |
18,884 | 14,167 | 19,699 | 13,850 | ||||||||||||
Assumed conversion of convertible senior notes |
| | | 1,915 | ||||||||||||
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Weighted average common shares outstanding |
707,611 | 734,767 | 712,270 | 738,051 | ||||||||||||
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Diluted EPS |
$ | 2.41 | $ | 1.17 | $ | 3.70 | $ | 1.82 | ||||||||
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The following were excluded from the calculation of diluted EPS (in thousands): |
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Stock options, SARs and RSUs because inclusion would be antidilutive |
905 | 582 | 453 | 307 |
(a) | In March 2014, the Company notified the holders of US Airways Groups 7.25% convertible senior notes that it had elected to settle all future conversions solely in cash instead of shares of AAG Common Stock in accordance with the related indenture. Thus, the diluted shares included the weighted average impact of the 7.25% convertible senior notes only for the period from January 1, 2014 to March 12, 2014. For purposes of computing diluted earnings per share under GAAP, the Company was required to adjust the numerator by the change in fair value of the conversion feature from March 12, 2014 to May 15, 2014, which decreased GAAP net income by $2 million for the three months ended June 30, 2014 and increased GAAP net income by $3 million for the six months ended June 30, 2014. |
6. Share Repurchase Program and Dividend
On January 27, 2015, the Company announced that its Board of Directors had authorized a new $2.0 billion share repurchase program to be completed by the end of 2016. Shares repurchased under the program may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The program does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at the Companys discretion. During the three months ended June 30, 2015, the Company repurchased 17.3 million shares of AAG Common Stock for $753 million at a weighted average cost per share of $43.53. During the six months ended June 30, 2015, the Company repurchased 21.1 million shares of AAG Common Stock for $943 million at a weighted average cost per share of $44.60.
Also on January 27, 2015, the Company announced that its Board of Directors had declared a $0.10 per share dividend for shareholders of record on February 9, 2015, and payable on February 23, 2015.
In April 2015, the Company announced that its Board of Directors had declared a $0.10 per share dividend for shareholders of record on May 4, 2015, and payable on May 18, 2015.
The total cash payment for dividends during the three and six months ended June 30, 2015 was $70 million and $140 million, respectively. Any future dividends that may be declared and paid from time to time under the Companys capital deployment program will be subject to market and economic conditions, applicable legal requirements and other relevant factors. The Companys capital deployment program does not obligate it to continue a dividend for any fixed period, and payment of dividends may be suspended at any time at the Companys discretion.
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
7. Debt
Long-term debt and capital lease obligations included in the condensed consolidated balance sheets consisted of (in millions):
June 30, 2015 | December 31, 2014 | |||||||
Secured |
||||||||
2013 Credit Facilities, variable interest rate of 3.25%, installments through 2020 |
$ | 1,867 | $ | 1,872 | ||||
2014 Credit Facilities, variable interest rate of 3.50%, installments through 2021 |
750 | 750 | ||||||
2013 Citicorp Credit Facility tranche B-1, variable interest rate of 3.50%, installments through 2019 |
980 | 990 | ||||||
2013 Citicorp Credit Facility tranche B-2, variable interest rate of 3.00%, installments through 2016 |
588 | 594 | ||||||
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.38% to 9.75%, maturing from 2015 to 2027 |
7,777 | 7,028 | ||||||
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.50% to 8.48%, maturing from 2015 to 2027 |
3,059 | 2,952 | ||||||
Special facility revenue bonds, fixed interest rates ranging from 5.00% to 8.50%, maturing from 2016 to 2035 |
1,111 | 1,100 | ||||||
AAdvantage Loan, effective rate of 8.30% |
| 433 | ||||||
Other secured obligations, fixed interest rates ranging from 3.60% to 12.24%, maturing from 2015 to 2028 |
957 | 994 | ||||||
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17,089 | 16,713 | |||||||
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Unsecured |
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5.50% senior notes, interest only payments until due in 2019 |
750 | 750 | ||||||
6.125% senior notes, interest only payments until due in 2018 |
500 | 500 | ||||||
4.625% senior notes, interest only payments until due in 2020 |
500 | | ||||||
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1,750 | 1,250 | |||||||
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Total long-term debt and capital lease obligations |
18,839 | 17,963 | ||||||
Less: Total unamortized debt discount |
45 | 59 | ||||||
Less: Current maturities |
1,642 | 1,708 | ||||||
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Long-term debt and capital lease obligations, net of current maturities |
$ | 17,152 | $ | 16,196 | ||||
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2013 Credit Facilities
On May 21, 2015, American refinanced its $1.9 billion term loan facility (the $1.9 billion 2015 Term Loan Facility and, together with a $1.4 billion revolving credit facility, the 2013 Credit Facilities) to extend the maturity date to June 29, 2020 and reduce the LIBOR margin from 3.00% to 2.75%. In addition, American entered into certain amendments to reflect the ability for American to make future modifications to the collateral pledged, subject to certain restrictions. The LIBOR margin under the $1.9 billion 2015 Term Loan Facility may vary based on Americans credit ratings, and on June 30, 2015 the LIBOR margin was further reduced to 2.50% due to an improvement in Americans credit ratings.
2014 Credit Facilities
On April 20, 2015, American refinanced its $750 million term loan facility (the $750 million 2015 Term Loan Facility and, together with a $400 million revolving credit facility, the 2014 Credit Facilities) to reduce the LIBOR margin from 3.50% to 3.00% and entered into certain amendments to reflect the release of certain existing collateral and the addition of certain new collateral, as well as the ability for American to make future modifications to the collateral pledged, subject to certain restrictions. The LIBOR margin under the $750 million 2015 Term Loan Facility may vary based on Americans credit ratings, and on June 30, 2015 the LIBOR margin was further reduced to 2.75% due to an improvement in Americans credit ratings.
2015-1 EETCs
In March 2015, American created two pass-through trusts which issued approximately $1.2 billion aggregate face amount of Series 2015-1 Class A and Class B EETCs in connection with the financing of 28 aircraft currently owned or scheduled to be delivered from July 2015 to September 2015 (the 2015 EETC Aircraft). The 2015-1 EETCs represent fractional undivided interests in the respective pass-through trusts and are not obligations of American. Proceeds received from the sale of EETCs are initially held by a depository in escrow for the benefit of the certificate holders until American issues equipment notes to the pass-through trusts, which purchase the notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by American and are not reported as debt on the Companys condensed consolidated balance sheet because the proceeds held by the depository are not Americans assets.
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
As of June 30, 2015, $1.0 billion of the escrowed proceeds from the 2015-1 EETCs have been used to purchase equipment notes issued by American in two series: Series A equipment notes in the amount of $796 million bearing interest at 3.375% per annum and Series B equipment notes in the amount of $223 million bearing interest at 3.70% per annum. Interest and principal payments on the equipment notes are payable semi-annually in May and November of each year, beginning in November 2015. The final payments on the Series A and Series B equipment notes will be due in May 2027 and May 2023, respectively. These equipment notes are secured by liens on 19 of the 2015 EETC Aircraft. The remaining $195 million of escrowed proceeds will be used to purchase equipment notes as the remaining nine new aircraft are delivered.
4.625% Senior Notes
In March 2015, the Company issued $500 million aggregate principal amount of 4.625% senior notes due 2020 (the 4.625% senior notes). These notes bear interest at a rate of 4.625% per annum and are payable semi-annually in arrears on each March 1 and September 1, beginning on September 1, 2015. The 4.625% senior notes mature on March 1, 2020 and are fully and unconditionally guaranteed by American, US Airways Group and US Airways, Inc. (US Airways). The 4.625% senior notes are senior unsecured obligations of the Company. The indenture for the 4.625% senior notes contains covenants and events of default generally customary for similar financings. In addition, if the Company experiences specific kinds of changes of control, the Company must offer to repurchase the 4.625% senior notes in whole or in part at a repurchase price of 101% of the aggregate principal amount plus accrued and unpaid interest, if any, to (but not including) the repurchase date. Upon the occurrence of certain events of default, the 4.625% senior notes may be accelerated and become due and payable.
AAdvantage Loan
Effective January 2, 2015, American exercised its loan repayment right with respect to the full value of the outstanding balance of the AAdvantage Loan with Citibank for $400 million. In connection with the repayment, in the first quarter of 2015, American recognized an early debt extinguishment gain of approximately $17 million.
Obligations Associated with Special Facility Revenue Bonds
In December 2014, American acquired approximately $112 million aggregate principal amount of special facility revenue bonds related to the Tulsa International Airport, when such bonds were mandatorily tendered to American. The acquisition of these bonds resulted in an $11 million reduction of debt on the Companys consolidated balance sheet and a $50 million reduction of a long-term operating lease obligation included in other long-term liabilities on the Companys consolidated balance sheet as of December 31, 2014. American exercised its option to remarket approximately $104 million of these bonds in May 2015. The remarketed bonds will initially bear a coupon interest rate of 5% from the date of initial issuance and delivery of the bonds on May 27, 2015, until the day preceding June 1, 2025, on which date the bonds will be subject to mandatory tender. In connection with the remarketing of these special facility revenue bonds, American received cash proceeds of $112 million and recognized a total obligation of $62 million. Of that total obligation, $11 million is reflected as a capital lease and $51 million is reflected in other long-term liabilities on the Companys condensed consolidated balance sheet as of June 30, 2015.
In June 2015, American exercised its right to adjust the interest rate on approximately $365 million aggregate principal amount of special facility revenue bonds, reflected as debt on the Companys condensed consolidated balance sheet related to the John F. Kennedy International Airport. In connection with the adjustment to a new interest rate, the bonds are required to be purchased by American on August 3, 2015. American is in the process of remarketing the bonds at the new interest rate. The remarketed bonds are expected to be subject to mandatory tender for purchase by American on August 1, 2016. As a result, American reclassified $365 million to current maturities of long-term debt on its condensed consolidated balance sheet as of June 30, 2015.
Other Aircraft Financing Transactions
In the first six months of 2015, American prepaid $72 million principal amount of outstanding debt secured by certain aircraft.
In the first six months of 2015, the Company entered into loan agreements to borrow $465 million in connection with the financing of certain aircraft deliveries. The notes mature in 2025 through 2027 and bear interest at a rate of LIBOR plus an applicable margin.
8. Income Taxes
At December 31, 2014, the Company had approximately $10.1 billion of gross NOL Carryforwards to reduce future federal taxable income, substantially all of which are expected to be available for use in 2015. The federal NOL Carryforwards will expire beginning
16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
in 2022 if unused. These NOL Carryforwards include an unrealized tax benefit of $867 million related to the implementation of share-based compensation accounting guidance that will be recorded in equity when realized. The Company also had approximately $4.6 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2014, which will expire in years 2015 through 2034 if unused. The Companys ability to deduct its NOL Carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an ownership change has occurred. The Company experienced an ownership change in connection with its emergence from the Chapter 11 Cases, and US Airways Group experienced an ownership change in connection with the Merger. As a result of the Merger, US Airways Group is now included in the AAG consolidated federal and state income tax return. The general limitation rules of Section 382 for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. The Company elected to be covered by certain special rules for federal income tax purposes that permit approximately $9.0 billion of its federal NOL Carryforwards to be utilized without regard to the Section 382 annual limitation rules. Substantially all of the Companys remaining federal NOL Carryforwards (attributable to US Airways Group) are subject to limitation under Section 382; however, the Companys ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. Similar limitations may apply for state income tax purposes. The Companys ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another ownership change occurs.
At December 31, 2014, the Company had an Alternative Minimum Tax (AMT) credit carryforward of approximately $341 million available for federal income tax purposes, which is available for an indefinite period. The Companys net deferred tax assets, which include the NOL Carryforwards, are subject to a full valuation allowance. At December 31, 2014, the federal and state valuation allowances were $4.5 billion and $264 million, respectively. In accordance with GAAP, utilization of the NOL Carryforwards after December 9, 2013 will result in a corresponding decrease in the valuation allowance and offset the Companys tax provision dollar for dollar.
The Company provides a valuation allowance for deferred tax assets when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. The Company considers all available positive and negative evidence and makes certain assumptions. The Company considers many factors in evaluating the realizability of its deferred tax assets including risks associated with merger integration as well as other factors, which continue to be affected by conditions beyond its control, such as the condition of the economy, the level and volatility of fuel prices and travel demand. The Company has concluded as of June 30, 2015 that the valuation allowance was still needed on its deferred tax asset based on the weight of the factors described above.
For the three and six months ended June 30, 2015, the Company recorded a special $7 million and $16 million, respectively, non-cash deferred income tax provision related to certain indefinite-lived intangible assets. In addition, for the three and six months ended June 30, 2015, the Company recorded $8 million and $10 million, respectively, of state and international income tax expense related to certain states and other jurisdictions where NOLs were limited or unavailable to be used.
During the second quarter of 2014, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the statement of operations for the second quarter of 2014 that reversed the non-cash tax provision which was recorded in OCI, a subset of stockholders equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Companys fuel hedging contracts. In accordance with GAAP, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated. In addition, the Company recorded a special $7 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets in the 2014 second quarter. The 2014 six month period included the $330 million non-cash tax provision related to the settlement of fuel hedges discussed above as well as a special $15 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.
For the three and six months ended June 30, 2014, the Company recorded $3 million and $8 million, respectively, of state and international income tax expense related to certain states and other jurisdictions where NOLs were limited or unavailable to be used.
17
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
9. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Companys short-term investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. No changes in valuation techniques or inputs occurred during the six months ended June 30, 2015.
Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):
Fair Value Measurements as of June 30, 2015 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Short-term investments (1), (2): |
||||||||||||||||
Money market funds |
$ | 376 | $ | 376 | $ | | $ | | ||||||||
Repurchase agreements |
43 | | 43 | | ||||||||||||
Corporate obligations |
4,512 | | 4,512 | | ||||||||||||
Bank notes / certificates of deposit / time deposits |
3,036 | | 3,036 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
7,967 | 376 | 7,591 | | |||||||||||||
Restricted cash and short-term investments (1) |
747 | 747 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 8,714 | $ | 1,123 | $ | 7,591 | $ | | ||||||||
|
|
|
|
|
|
|
|
(1) | Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other comprehensive loss at each measurement date. |
(2) | All short-term investments are classified as available-for-sale and stated at fair value. In addition, all short-term investments mature in one year or less except for $1.0 billion of corporate obligations and $1.6 billion of bank notes/certificates of deposit/time deposits. |
There were no Level 1 to Level 2 transfers during the six months ended June 30, 2015.
Venezuela Cash and Short-term Investments
As of June 30, 2015, the Company had approximately $629 million of unrestricted cash and short-term investments held in Venezuelan bolivars. This balance includes approximately $621 million valued at 6.3 bolivars to the U.S. dollar and approximately $8 million valued at 12.8 bolivars to the U.S. dollar, with the rate depending on the date the Company submitted its repatriation request to the Venezuelan government. These rates are materially more favorable than the exchange rates currently prevailing for other transactions conducted outside of the Venezuelan governments currency exchange system.
During 2014, the Company significantly reduced capacity in the Venezuelan market and is no longer accepting bolivars as payment for airline tickets. The Company is monitoring this situation closely and continues to evaluate its holdings of Venezuelan bolivars for additional foreign currency losses or other accounting adjustments, which could be material, particularly in light of the additional uncertainty posed by the recent changes to the foreign exchange regulations and the continued deterioration of economic conditions in Venezuela. More generally, fluctuations in foreign currencies, including devaluations, cannot be predicted by the Company and can significantly affect the value of the Companys assets located outside the United States. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation restrictions, may materially adversely affect the Companys business, results of operations and financial condition. See Part II, Item 1A. Risk Factors We operate a global business with international operations that are subject to economic and political instability and have been, and in the future may continue to be, adversely affected by numerous events, circumstances or government actions beyond our control for additional discussion of this and other currency risks.
18
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
Fair Value of Debt
The fair value of the Companys long-term debt was estimated using quoted market prices or discounted cash flow analyses, based on the Companys current estimated incremental borrowing rates for similar types of borrowing arrangements. If the Companys long-term debt was measured at fair value, it would have been classified as Level 2 in the fair value hierarchy.
The carrying value and estimated fair value of the Companys long-term debt, including current maturities, were as follows (in millions):
June 30, 2015 | December 31, 2014 | |||||||||||||||
Carrying Value |
Fair Value |
Carrying Value |
Fair Value |
|||||||||||||
Long-term debt, including current maturities |
$ | 18,794 | $ | 19,271 | $ | 17,904 | $ | 18,542 | ||||||||
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10. Retirement Benefits
The following tables provide the components of net periodic benefit cost (in millions):
Pension Benefits | Retiree Medical and Other Benefits | |||||||||||||||
Three Months Ended June 30, |
2015 | 2014 | 2015 | 2014 | ||||||||||||
Service cost |
$ | 1 | $ | 2 | $ | 1 | $ | 1 | ||||||||
Interest cost |
184 | 185 | 13 | 16 | ||||||||||||
Expected return on assets |
(213 | ) | (197 | ) | (5 | ) | (5 | ) | ||||||||
Settlements |
1 | 1 | | | ||||||||||||
Amortization of: |
||||||||||||||||
Prior service cost (benefit) (1) |
7 | 7 | (61 | ) | (59 | ) | ||||||||||
Unrecognized net loss (gain) |
28 | 12 | (2 | ) | (2 | ) | ||||||||||
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|
|||||||||
Net periodic benefit cost (income) |
$ | 8 | $ | 10 | $ | (54 | ) | $ | (49 | ) | ||||||
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|
|
|
|
(1) | The 2015 second quarter prior service cost does not include amortization of $1 million related to other post-employment benefits. |
Pension Benefits | Retiree Medical and Other Benefits | |||||||||||||||
Six Months Ended June 30, |
2015 | 2014 | 2015 | 2014 | ||||||||||||
Service cost |
$ | 1 | $ | 2 | $ | 2 | $ | 1 | ||||||||
Interest cost |
369 | 371 | 26 | 31 | ||||||||||||
Expected return on assets |
(426 | ) | (393 | ) | (10 | ) | (10 | ) | ||||||||
Settlements |
1 | 3 | | | ||||||||||||
Amortization of: |
||||||||||||||||
Prior service cost (benefit) (1) |
14 | 14 | (121 | ) | (120 | ) | ||||||||||
Unrecognized net loss (gain) |
56 | 23 | (3 | ) | (4 | ) | ||||||||||
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|
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|
|
|
|||||||||
Net periodic benefit cost (income) |
$ | 15 | $ | 20 | $ | (106 | ) | $ | (102 | ) | ||||||
|
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|
|
|
|
|
|
(1) | The 2015 six month period prior service cost does not include amortization of $1 million related to other post-employment benefits. |
Effective November 1, 2012, the Companys defined benefit pension plans were frozen.
The Company is required to make minimum contributions to its defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA), the Pension Funding Equity Act of 2004, the Pension Protection Act of 2006, the Pension Relief Act of 2010 and the Moving Ahead for Progress in the 21st Century Act of 2012. Based on current funding assumptions, the Company has no minimum required contributions until 2019. Currently, the Companys minimum funding obligation for its pension plans is subject to temporary favorable rules that are scheduled to expire at the end of 2017. Upon expiration of these rules, the Companys funding obligations are likely to increase materially. The amount of these obligations will depend on the performance of the Companys investments held in trust by the pension plans, interest rates for determining liabilities and the Companys actuarial experience.
19
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
11. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) (AOCI) are as follows (in millions):
Pension and Retiree Medical Liability |
Derivative Financial Instruments |
Unrealized Gain/(Loss) on Investments |
Income Tax Benefit (Expense) |
Total | ||||||||||||||||
Balance at December 31, 2014 |
$ | (3,683 | ) | $ | 9 | $ | (5 | ) | $ | (880 | ) | $ | (4,559 | ) | ||||||
Other comprehensive income (loss) before reclassifications |
| | | | | |||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) |
(52 | ) | (9 | ) | | | (61 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net current period other comprehensive income (loss) |
(52 | ) | (9 | ) | | | (61 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at June 30, 2015 |
$ | (3,735 | ) | $ | | $ | (5 | ) | $ | (880 | ) | $ | (4,620 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
Reclassifications out of AOCI for the three and six months ended June 30, 2015 and 2014 are as follows (in millions):
Amounts reclassified from AOCI | ||||||||||||||||||
AOCI Components |
Three Months Ended June 30, | Six Months Ended June 30, |
Affected line items on condensed consolidated statement of operations | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||||
Amortization of pension and retiree medical liability: |
||||||||||||||||||
Prior service cost |
$ | (53 | ) | $ | (52 | ) | $ | (106 | ) | $ | (106 | ) | Salaries, wages and benefits | |||||
Actuarial loss |
27 | 10 | 54 | 19 | Salaries, wages and benefits | |||||||||||||
Derivative financial instruments: |
||||||||||||||||||
Cash flow hedges |
(3 | ) | 5 | (9 | ) | 12 | Aircraft fuel and related taxes | |||||||||||
Net unrealized change on investments: |
||||||||||||||||||
Net change in value |
(1 | ) | | | 2 | Other nonoperating, net | ||||||||||||
Income tax benefit: |
||||||||||||||||||
Reversal of non-cash tax provision |
| 330 | | 330 | Income tax provision | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total reclassifications for the period |
$ | (30 | ) | $ | 293 | $ | (61 | ) | $ | 257 | ||||||||
|
|
|
|
|
|
|
|
12. Regional Expenses
Expenses associated with the Companys wholly-owned regional airlines and third-party regional carriers operating under the brand names American Eagle and US Airways Express are classified as regional expenses on the condensed consolidated statements of operations. Regional expenses consist of the following (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Aircraft fuel and related taxes |
$ | 349 | $ | 535 | $ | 660 | $ | 1,035 | ||||||||
Salaries, wages and benefits |
293 | 288 | 585 | 567 | ||||||||||||
Capacity purchases from third-party regional carriers |
409 | 371 | 787 | 722 | ||||||||||||
Maintenance, materials and repairs |
88 | 82 | 162 | 169 | ||||||||||||
Other rent and landing fees |
122 | 105 | 230 | 202 | ||||||||||||
Aircraft rent |
8 | 9 | 17 | 18 | ||||||||||||
Selling expenses |
89 | 87 | 165 | 159 | ||||||||||||
Depreciation and amortization |
61 | 50 | 118 | 103 | ||||||||||||
Special items, net |
10 | 2 | 18 | 6 | ||||||||||||
Other |
128 | 128 | 277 | 270 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total regional expenses |
$ | 1,557 | $ | 1,657 | $ | 3,019 | $ | 3,251 | ||||||||
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|
|
|
|
|
|
13. Legal Proceedings
Chapter 11 Cases. As previously disclosed, on the Petition Date, November 29, 2011, the Debtors filed the Chapter 11 Cases. On October 21, 2013, the Bankruptcy Court entered the Confirmation Order confirming the Plan. On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan, principally through the transactions contemplated by the Merger Agreement pursuant to which Merger Sub merged with and into US Airways Group, with US Airways Group surviving as a wholly-owned subsidiary of AAG. From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date, generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the Bankruptcy Court to determine the amount, if any, of such litigation claims for purposes of treatment under the Plan.
20
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve to hold shares of AAG Common Stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed Single-Dip Unsecured Claims. The shares provided for under the Plan were determined based upon a Disputed Claims Reserve amount of claims of approximately $755 million, representing the maximum amount of additional distributions to subsequently allowed Single-Dip Unsecured Claims under the Plan. As of December 31, 2014, the Disputed Claims Reserve held 26.8 million shares of AAG Common Stock pending distribution of those shares in accordance with the Plan. On February 10, 2015, approximately 0.8 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and the Company repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $4 million from the Disputed Claims Reserve at the then-prevailing market price in order to fund cash tax obligations resulting from this distribution. As of June 30, 2015, there were approximately 26.0 million shares of AAG Common Stock remaining in the Disputed Claims Reserve. On July 14, 2015, approximately 0.6 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and the Company repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $2 million from the Disputed Claims Reserve at the then-prevailing market price in order to fund cash tax obligations resulting from this distribution. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. However, the Company is not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution are not sufficient to fully pay any additional allowed unsecured claims. To the extent that any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to the Company but rather will be distributed to former AMR shareholders as of the Effective Date. However, resolution of disputed claims could have a material effect on recoveries by holders of additional allowed Single-Dip Unsecured Claims under the Plan and the amount of additional share distributions, if any, that are made to former AMR shareholders as the total number of shares of AAG Common Stock that remain available for distribution upon resolution of disputed claims is limited pursuant to the Plan.
There is also pending in the Bankruptcy Court an adversary proceeding relating to an action brought by American to seek a determination that certain non-pension, post-employee benefits (OPEB) are not vested benefits and thus may be modified or terminated without liability to American. On April 18, 2014, the Bankruptcy Court granted Americans motion for summary judgment with respect to certain non-union employees, concluding that their benefits were not vested and could be terminated. The summary judgment motion was denied with respect to all other retirees. The Bankruptcy Court has not yet scheduled a trial on the merits concerning whether those retirees benefits are vested, and American cannot predict whether it will receive relief from obligations to provide benefits to any of those retirees. The Companys financial statements presently reflect these retirement programs without giving effect to any modification or termination of benefits that may ultimately be implemented based upon the outcome of this proceeding. Separately, both the Association of Professional Flight Attendants and Transport Workers Union have filed grievances asserting that American was successful in its Chapter 11 with respect to matters related to OPEB and, accordingly, by operation of the underlying collective bargaining agreements, Americans prior contributions to certain OPEB prefunding trusts attributable to active employees should be returned to those active employees. These amounts aggregate approximately $212 million. The Company has denied both grievances and intends to defend these matters vigorously.
DOJ Civil Investigative Demand. In June 2015, the Company received a Civil Investigative Demand (CID) from the United States Department of Justice (DOJ) as part of an investigation into whether there have been illegal agreements or coordination of air passenger capacity. The CID seeks documents and other information from the Company, and other airlines have announced that they have received similar requests. The Company intends to cooperate fully with the DOJ investigation. In addition, subsequent to announcement of the delivery of CIDs by the DOJ, the Company, along with Delta Air Lines, Inc., Southwest Airlines Co., United Airlines, Inc. and, in the case of litigation filed in Canada, Air Canada, have been named as defendants in a number of putative class action lawsuits alleging unlawful agreements with respect to air passenger capacity. The U.S. lawsuits are the subject of multiple motions to consolidate them in a single forum. Both the DOJ process and these lawsuits are in their very early stages and the Company intends to defend the lawsuits vigorously.
Private Party Antitrust Action. On July 2, 2013, a lawsuit captioned Carolyn Fjord, et al., v. US Airways Group, Inc., et al., was filed in the United States District Court for the Northern District of California. The complaint named as defendants US Airways Group and US Airways, and alleged that the effect of the Merger may be to substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Antitrust Act. The relief sought in the complaint included an injunction against the Merger, or divestiture. On August 6, 2013, the plaintiffs re-filed their complaint in the Bankruptcy Court, adding AMR and American as defendants, and on October 2, 2013, dismissed the initial California action. The Bankruptcy Court denied plaintiffs motion to
21
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
preliminarily enjoin the Merger. On January 10, 2014, the plaintiffs moved to amend their complaint to add additional factual allegations, a claim for money damages and a request for preliminary injunctive relief requiring the carriers to hold separate their assets. On March 14, 2014, the Court allowed plaintiffs to add certain allegations but denied plaintiffs requests to add a damages claim or seek preliminary injunctive relief requiring the carriers to hold separate their assets. On June 2, 2014, plaintiffs filed an amended motion for leave to file a second amended and supplemental complaint. On March 31, 2015, the Court denied plaintiffs motion. There is currently no trial date set. The Company believes this lawsuit is without merit and intends to vigorously defend against the allegations.
US Airways Sabre Matter. On April 21, 2011, US Airways filed an antitrust lawsuit against Sabre Holdings Corporation, Sabre Inc. and Sabre Travel International Limited (collectively, Sabre) in the Federal District Court for the Southern District of New York. The lawsuit, as amended to date, alleges, among other things, that Sabre has engaged in anticompetitive practices to preserve its market power by restricting the Companys ability to distribute its products to its customers. The lawsuit also alleges that these actions have permitted Sabre to charge supracompetitive booking fees and to use technologies that are not as robust and as efficient as alternatives in a competitive market. The lawsuit seeks money damages. Sabre filed a motion to dismiss the case, which the court denied in part and granted in part in September 2011, allowing two of the four counts in the complaint to proceed. In January 2015, the court denied in part and granted in part Sabres motions for summary judgment. A trial date is expected to be set soon. The Company intends to pursue its claims against Sabre vigorously, but there can be no assurance of the outcome of this litigation.
General. The Company and its subsidiaries are also engaged in other legal proceedings from time to time. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within the control of the Company. Therefore, although the Company will vigorously defend itself in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on the Company are uncertain.
14. Financial Information for Subsidiary Guarantors and Non-guarantor Subsidiaries
There are various cross-guarantees among the Company, American, US Airways Group and US Airways with respect to publicly held debt securities. In connection with the Merger, the Company and American entered into a second supplemental indenture under which they jointly and severally guaranteed the payment obligations of US Airways Group under the 6.125% senior notes. In addition, on March 31, 2014, the Company, US Airways Group and US Airways entered into amended and restated guarantees of the payment obligations of US Airways under the equipment notes relating to each of its Series 2010-1, 2011-1, 2012-1, 2012-2 and 2013-1 Pass Through Certificates the result of which was to add AAG as a guarantor of such equipment notes on a joint and several basis with US Airways Group.
In connection with the issuance of these guarantees, in accordance with Rule 3-10 of Regulation S-X and Rule 12h-5 under the Securities Exchange Act of 1934, as amended, US Airways Group and US Airways discontinued filing separate periodic and current reports with the SEC. As a result, in accordance with Rule 3-10, the Company is providing the following condensed consolidating financial information for the periods after Merger close for American Airlines Group (Parent Company Only), American, US Airways Group Parent, US Airways and all other non-guarantor subsidiaries, together with the consolidating adjustments necessary to present the Companys results on a consolidated basis.
22
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)(Unaudited)
Three Months Ended June 30, 2015 | ||||||||||||||||||||||||||||
American Airlines Group (Parent Company Only) |
American | US Airways Group (Parent Company Only) |
US Airways | Non- Guarantor Subsidiaries |
Eliminations and Reclassifications |
American Airlines Group Inc. Consolidated |
||||||||||||||||||||||
Operating revenues: |
||||||||||||||||||||||||||||
Mainline passenger |
$ | | $ | 4,947 | $ | | $ | 2,708 | $ | | $ | | $ | 7,655 | ||||||||||||||
Regional passenger |
| 843 | | 916 | | | 1,759 | |||||||||||||||||||||
Cargo |
| 161 | | 33 | | | 194 | |||||||||||||||||||||
Other |
| 868 | | 373 | 761 | (783 | ) | 1,219 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating revenues |
| 6,819 | | 4,030 | 761 | (783 | ) | 10,827 | ||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||
Aircraft fuel and related taxes |
| 1,197 | | 577 | | | 1,774 | |||||||||||||||||||||
Salaries, wages and benefits |
| 1,536 | | 825 | 198 | (195 | ) | 2,364 | ||||||||||||||||||||
Regional expenses |
| 788 | | 792 | | (23 | ) | 1,557 | ||||||||||||||||||||
Maintenance, materials and repairs |
| 302 | | 200 | 87 | (87 | ) | 502 | ||||||||||||||||||||
Other rent and landing fees |
| 269 | | 182 | 11 | (11 | ) | 451 | ||||||||||||||||||||
Aircraft rent |
| 226 | | 90 | 37 | (37 | ) | 316 | ||||||||||||||||||||
Selling expenses |
| 198 | | 152 | | | 350 | |||||||||||||||||||||
Depreciation and amortization |
| 247 | | 93 | 11 | (11 | ) | 340 | ||||||||||||||||||||
Special items, net |
| 74 | | 70 | | | 144 | |||||||||||||||||||||
Other |
| 776 | | 334 | 418 | (420 | ) | 1,108 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating expenses |
| 5,613 | | 3,315 | 762 | (784 | ) | 8,906 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating income (loss) |
| 1,206 | | 715 | (1 | ) | 1 | 1,921 | ||||||||||||||||||||
Nonoperating income (expense): |
||||||||||||||||||||||||||||
Interest income |
| 10 | | 3 | 3 | (6 | ) | 10 | ||||||||||||||||||||
Interest expense, net |
(17 | ) | (137 | ) | (9 | ) | (63 | ) | (3 | ) | 6 | (223 | ) | |||||||||||||||
Equity in earnings of subsidiaries |
1,705 | | 413 | | | (2,118 | ) | | ||||||||||||||||||||
Other, net |
22 | (16 | ) | | 5 | | | 11 | ||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total nonoperating income (expense), net |
1,710 | (143 | ) | 404 | (55 | ) | | (2,118 | ) | (202 | ) | |||||||||||||||||
|
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|
|
|||||||||||||||
Income (loss) before income taxes |
1,710 | 1,063 | 404 | 660 | (1 | ) | (2,117 | ) | 1,719 | |||||||||||||||||||
Income tax provision |
| 11 | | 247 | 5 | (248 | ) | 15 | ||||||||||||||||||||
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|
|||||||||||||||
Net income (loss) |
$ | 1,710 | $ | 1,052 | $ | 404 | $ | 413 | $ | (6 | ) | $ | (1,869 | ) | $ | 1,704 | ||||||||||||
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|
|
|
|
|
|
23
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In millions)(Unaudited)
Three Months Ended June 30, 2015 | ||||||||||||||||||||||||||||
American Airlines Group (Parent Company Only) |
American | US Airways Group (Parent Company Only) |
US Airways | Non- Guarantor Subsidiaries |
Eliminations and Reclassifications |
American Airlines Group Inc. Consolidated |
||||||||||||||||||||||
Net income (loss) |
$ | 1,710 | $ | 1,052 | $ | 404 | $ | 413 | $ | (6 | ) | $ | (1,869 | ) | $ | 1,704 | ||||||||||||
Other comprehensive income (loss) before tax: |
||||||||||||||||||||||||||||
Defined benefit pension plans and retiree medical |
| (25 | ) | | (1 | ) | | | (26 | ) | ||||||||||||||||||
Derivative financial instruments: |
||||||||||||||||||||||||||||
Change in fair value |
| | | | | | | |||||||||||||||||||||
Reclassification into earnings |
| (3 | ) | | | | | (3 | ) | |||||||||||||||||||
Unrealized loss on investments: |
||||||||||||||||||||||||||||
Net change in value |
| (1 | ) | | | | | (1 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Other comprehensive loss before tax |
| (29 | ) | | (1 | ) | | | (30 | ) | ||||||||||||||||||
Non-cash tax provision |
| | | | | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Comprehensive income (loss) |
$ | 1,710 | $ | 1,023 | $ | 404 | $ | 412 | $ | (6 | ) | $ | (1,869 | ) | $ | 1,674 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)(Unaudited)
Six Months Ended June 30, 2015 | ||||||||||||||||||||||||||||
American Airlines Group (Parent Company Only) |
American | US Airways Group (Parent Company Only) |
US Airways | Non- Guarantor Subsidiaries |
Eliminations and Reclassifications |
American Airlines Group Inc. Consolidated |
||||||||||||||||||||||
Operating revenues: |
||||||||||||||||||||||||||||
Mainline passenger |
$ | | $ | 9,638 | $ | | $ | 5,006 | $ | | $ | | $ | 14,644 | ||||||||||||||
Regional passenger |
| 1,542 | | 1,669 | | | 3,211 | |||||||||||||||||||||
Cargo |
| 322 | | 66 | | | 388 | |||||||||||||||||||||
Other |
| 1,686 | | 762 | 1,486 | (1,523 | ) | 2,411 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating revenues |
| 13,188 | | 7,503 | 1,486 | (1,523 | ) | 20,654 | ||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||
Aircraft fuel and related taxes |
| 2,267 | | 1,051 | | | 3,318 | |||||||||||||||||||||
Salaries, wages and benefits |
| 3,121 | | 1,611 | 391 | (386 | ) | 4,737 | ||||||||||||||||||||
Regional expenses |
| 1,516 | | 1,558 | | (55 | ) | 3,019 | ||||||||||||||||||||
Maintenance, materials and repairs |
| 606 | | 389 | 161 | (161 | ) | 995 | ||||||||||||||||||||
Other rent and landing fees |
| 539 | | 320 | 20 | (20 | ) | 859 | ||||||||||||||||||||
Aircraft rent |
| 451 | | 182 | 68 | (68 | ) | 633 | ||||||||||||||||||||
Selling expenses |
| 433 | | 253 | | | 686 | |||||||||||||||||||||
Depreciation and amortization |
| 483 | | 193 | 22 | (22 | ) | 676 | ||||||||||||||||||||
Special items, net |
| 272 | | 175 | 4 | (4 | ) | 447 | ||||||||||||||||||||
Other |
2 | 1,534 | | 614 | 804 | (807 | ) | 2,147 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating expenses |
2 | 11,222 | | 6,346 | 1,470 | (1,523 | ) | 17,517 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating income (loss) |
(2 | ) | 1,966 | | 1,157 | 16 | | 3,137 | ||||||||||||||||||||
Nonoperating income (expense): |
||||||||||||||||||||||||||||
Interest income |
2 | 16 | | 7 | 3 | (9 | ) | 19 | ||||||||||||||||||||
Interest expense, net |
(30 | ) | (263 | ) | (18 | ) | (127 | ) | (3 | ) | 9 | (432 | ) | |||||||||||||||
Equity in earnings of subsidiaries |
2,649 | | 663 | | | (3,312 | ) | | ||||||||||||||||||||
Other, net |
22 | (80 | ) | | (5 | ) | 1 | | (62 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total nonoperating income (expense), net |
2,643 | (327 | ) | 645 | (125 | ) | 1 | (3,312 | ) | (475 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income before income taxes |
2,641 | 1,639 | 645 | 1,032 | 17 | (3,312 | ) | 2,662 | ||||||||||||||||||||
Income tax provision |
| 19 | | 378 | 8 | (379 | ) | 26 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income |
$ | 2,641 | $ | 1,620 | $ | 645 | $ | 654 | $ | 9 | $ | (2,933 | ) | $ | 2,636 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
(In millions)(Unaudited)
Six Months Ended June 30, 2015 | ||||||||||||||||||||||||||||
American Airlines Group (Parent Company Only) |
American | US Airways Group (Parent Company Only) |
US Airways | Non- Guarantor Subsidiaries |
Eliminations and Reclassifications |
American Airlines Group Inc. Consolidated |
||||||||||||||||||||||
Net income |
$ | 2,641 | $ | 1,620 | $ | 645 | $ | 654 | $ | 9 | $ | (2,933 | ) | $ | 2,636 | |||||||||||||
Other comprehensive income (loss) before tax: |
||||||||||||||||||||||||||||
Defined benefit pension plans and retiree medical |
| (51 | ) | | (1 | ) | | | (52 | ) | ||||||||||||||||||
Derivative financial instruments: |
||||||||||||||||||||||||||||
Change in fair value |
| | | | | | | |||||||||||||||||||||
Reclassification into earnings |
| (9 | ) | | | | | (9 | ) | |||||||||||||||||||
Unrealized gain on investments: |
||||||||||||||||||||||||||||
Net change in value |
| | | | | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Other comprehensive loss before tax |
| (60 | ) | | (1 | ) | | | (61 | ) | ||||||||||||||||||
Non-cash tax provision |
| | | | | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Comprehensive income |
$ | 2,641 | $ | 1,560 | $ | 645 | $ | 653 | $ | 9 | $ | (2,933 | ) | $ | 2,575 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)(Unaudited)
Three Months Ended June 30, 2014 | ||||||||||||||||||||||||||||
American Airlines Group (Parent Company Only) |
American | US Airways Group (Parent Company Only) |
US Airways | Non- Guarantor Subsidiaries |
Eliminations and Reclassifications |
American Airlines Group Inc. Consolidated |
||||||||||||||||||||||
Operating revenues: |
||||||||||||||||||||||||||||
Mainline passenger |
$ | | $ | 5,352 | $ | | $ | 2,861 | $ | | $ | | $ | 8,213 | ||||||||||||||
Regional passenger |
| 786 | | 921 | | | 1,707 | |||||||||||||||||||||
Cargo |
| 178 | | 43 | | | 221 | |||||||||||||||||||||
Other |
| 837 | | 408 | 744 | (775 | ) | 1,214 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating revenues |
| 7,153 | | 4,233 | 744 | (775 | ) | 11,355 | ||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||
Aircraft fuel and related taxes |
| 1,897 | | 933 | | | 2,830 | |||||||||||||||||||||
Salaries, wages and benefits |
| 1,441 | | 720 | 195 | (193 | ) | 2,163 | ||||||||||||||||||||
Regional expenses |
| 804 | | 867 | | (14 | ) | 1,657 | ||||||||||||||||||||
Maintenance, materials and repairs |
| 346 | | 168 | 80 | (80 | ) | 514 | ||||||||||||||||||||
Other rent and landing fees |
| 289 | | 152 | 7 | (7 | ) | 441 | ||||||||||||||||||||
Aircraft rent |
| 214 | | 102 | 22 | (26 | ) | 312 | ||||||||||||||||||||
Selling expenses |
| 282 | | 120 | | | 402 | |||||||||||||||||||||
Depreciation and amortization |
| 220 | | 100 | 10 | (11 | ) | 319 | ||||||||||||||||||||
Special items, net |
(2 | ) | 179 | | 74 | | | 251 | ||||||||||||||||||||
Other |
2 | 763 | | 319 | 427 | (444 | ) | 1,067 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating expenses |
| 6,435 | | 3,555 | 741 | (775 | ) | 9,956 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating income |
| 718 | | 678 | 3 | | 1,399 | |||||||||||||||||||||
Nonoperating income (expense): |
||||||||||||||||||||||||||||
Interest income |
2 | 6 | 1 | 3 | | (4 | ) | 8 | ||||||||||||||||||||
Interest expense, net |
| (139 | ) | (10 | ) | (69 | ) | | 4 | (214 | ) | |||||||||||||||||
Equity in earnings of subsidiaries |
863 | | 595 | | | (1,458 | ) | | ||||||||||||||||||||
Other, net |
| 16 | 3 | (6 | ) | 1 | (3 | ) | 11 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total nonoperating income (expense), net |
865 | (117 | ) | 589 | (72 | ) | 1 | (1,461 | ) | (195 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income before income taxes |
865 | 601 | 589 | 606 | 4 | (1,461 | ) | 1,204 | ||||||||||||||||||||
Income tax provision (benefit) |
(3 | ) | 336 | | 1 | 6 | | 340 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) |
$ | 868 | $ | 265 | $ | 589 | $ | 605 | $ | (2 | ) | $ | (1,461 | ) | $ | 864 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In millions)(Unaudited)
Three Months Ended June 30, 2014 | ||||||||||||||||||||||||||||
American Airlines Group (Parent Company Only) |
American | US Airways Group (Parent Company Only) |
US Airways | Non- Guarantor Subsidiaries |
Eliminations and Reclassifications |
American Airlines Group Inc. Consolidated |
||||||||||||||||||||||
Net income (loss) |
$ | 868 | $ | 265 | $ | 589 | $ | 605 | $ | (2 | ) | $ | (1,461 | ) | $ | 864 | ||||||||||||
Other comprehensive income (loss) before tax: |
||||||||||||||||||||||||||||
Defined benefit pension plans and retiree medical |
| (58 | ) | | (1 | ) | | | (59 | ) | ||||||||||||||||||
Derivative financial instruments: |
||||||||||||||||||||||||||||
Change in fair value |
(2 | ) | 15 | | | | | 13 | ||||||||||||||||||||
Reclassification into earnings |
| 5 | | | | | 5 | |||||||||||||||||||||
Unrealized gain (loss) on investments: |
||||||||||||||||||||||||||||
Net change in value |
2 | (2 | ) | | | | | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Other comprehensive loss before tax |
| (40 | ) | | (1 | ) | | | (41 | ) | ||||||||||||||||||
Reversal of non-cash tax provision |
2 | 328 | | | | | 330 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Comprehensive income (loss) |
$ | 870 | $ | 553 | $ | 589 | $ | 604 | $ | (2 | ) | $ | (1,461 | ) | $ | 1,153 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)(Unaudited)
Six Months Ended June 30, 2014 | ||||||||||||||||||||||||||||
American Airlines Group (Parent Company Only) |
American | US Airways Group (Parent Company Only) |
US Airways | Non- Guarantor Subsidiaries |
Eliminations and Reclassifications |
American Airlines Group Inc. Consolidated |
||||||||||||||||||||||
Operating revenues: |
||||||||||||||||||||||||||||
Mainline passenger |
$ | | $ | 10,258 | $ | | $ | 5,213 | $ | | $ | | $ | 15,471 | ||||||||||||||
Regional passenger |
| 1,455 | | 1,659 | | | 3,114 | |||||||||||||||||||||
Cargo |
| 346 | | 82 | | | 428 | |||||||||||||||||||||
Other |
| 1,563 | | 826 | 1,488 | (1,539 | ) | 2,338 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating revenues |
| 13,622 | | 7,780 | 1,488 | (1,539 | ) | 21,351 | ||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||
Aircraft fuel and related taxes |
| 3,768 | | 1,773 | | | 5,541 | |||||||||||||||||||||
Salaries, wages and benefits |
| 2,839 | | 1,439 | 392 | (388 | ) | 4,282 | ||||||||||||||||||||
Regional expenses |
| 1,562 | | 1,696 | | (7 | ) | 3,251 | ||||||||||||||||||||
Maintenance, materials and repairs |
| 678 | | 321 | 165 | (165 | ) | 999 | ||||||||||||||||||||
Other rent and landing fees |
| 574 | | 292 | 15 | (15 | ) | 866 | ||||||||||||||||||||
Aircraft rent |
| 430 | | 205 | 43 | (47 | ) | 631 | ||||||||||||||||||||
Selling expenses |
| 566 | | 238 | | | 804 | |||||||||||||||||||||
Depreciation and amortization |
| 434 | | 195 | 20 | (23 | ) | 626 | ||||||||||||||||||||
Special items, net |
22 | (37 | ) | | 129 | 3 | (3 | ) | 114 | |||||||||||||||||||
Other |
4 | 1,512 | | 626 | 857 | (891 | ) | 2,108 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating expenses |
26 | 12,326 | | 6,914 | 1,495 | (1,539 | ) | 19,222 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating income (loss) |
(26 | ) | 1,296 | | 866 | (7 | ) | | 2,129 | |||||||||||||||||||
Nonoperating income (expense): |
||||||||||||||||||||||||||||
Interest income |
4 | 13 | 1 | 4 | 1 | (8 | ) | 15 | ||||||||||||||||||||
Interest expense, net |
(4 | ) | (307 | ) | (20 | ) | (134 | ) | | 8 | (457 | ) | ||||||||||||||||
Equity in earnings of subsidiaries |
1,314 | | 712 | | | (2,026 | ) | | ||||||||||||||||||||
Other, net |
| 11 | (53 | ) | (3 | ) | 1 | 53 | 9 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total nonoperating income (expense), net |
1,314 | (283 | ) | 640 | (133 | ) | 2 | (1,973 | ) | (433 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) before income taxes |
1,288 | 1,013 | 640 | 733 | (5 | ) | (1,973 | ) | 1,696 | |||||||||||||||||||
Income tax provision (benefit) |
(2 | ) | 347 | | 2 | 6 | | 353 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) |
$ | 1,290 | $ | 666 | $ | 640 | $ | 731 | $ | (11 | ) | $ | (1,973 | ) | $ | 1,343 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In millions)(Unaudited)
Six Months Ended June 30, 2014 | ||||||||||||||||||||||||||||
American Airlines Group (Parent Company Only) |
American | US Airways Group (Parent Company Only) |
US Airways | Non- Guarantor Subsidiaries |
Eliminations and Reclassifications |
American Airlines Group Inc. Consolidated |
||||||||||||||||||||||
Net income (loss) |
$ | 1,290 | $ | 666 | $ | 640 | $ | 731 | $ | (11 | ) | $ | (1,973 | ) | $ | 1,343 | ||||||||||||
Other comprehensive income (loss) before tax: |
||||||||||||||||||||||||||||
Defined benefit pension plans and retiree medical |
| (102 | ) | | (2 | ) | | | (104 | ) | ||||||||||||||||||
Derivative financial instruments: |
||||||||||||||||||||||||||||
Change in fair value |
(2 | ) | (52 | ) | | | | | (54 | ) | ||||||||||||||||||
Reclassification into earnings |
| 12 | | | | | 12 | |||||||||||||||||||||
Unrealized gain on investments: |
||||||||||||||||||||||||||||
Net change in value |
2 | | | | | | 2 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Other comprehensive loss before tax |
| (142 | ) | | (2 | ) | | | (144 | ) | ||||||||||||||||||
Reversal of non-cash tax provision |
2 | 328 | | | | | 330 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Comprehensive income (loss) |
$ | 1,292 | $ | 852 | $ | 640 | $ | 729 | $ | (11 | ) | $ | (1,973 | ) | $ | 1,529 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)(Unaudited)
June 30, 2015 | ||||||||||||||||||||||||||||
American Airlines Group (Parent Company Only) |
American | US Airways Group (Parent Company Only) |
US Airways | Non- Guarantor Subsidiaries |
Eliminations and Reclassifications |
American Airlines Group Inc. Consolidated |
||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||||||
Cash |
$ | 1 | $ | 789 | $ | 12 | $ | 144 | $ | 6 | $ | | $ | 952 | ||||||||||||||
Short-term investments |
| 5,192 | | 2,772 | 3 | | 7,967 | |||||||||||||||||||||
Restricted cash and short-term investments |
| 641 | | 106 | | | 747 | |||||||||||||||||||||
Accounts receivable, net |
| 1,535 | | 352 | 18 | (13 | ) | 1,892 | ||||||||||||||||||||
Receivables from related parties, net |
1,623 | | | 742 | 138 | (2,503 | ) | | ||||||||||||||||||||
Aircraft fuel, spare parts and supplies, net |
| 665 | | 330 | 74 | | 1,069 | |||||||||||||||||||||
Prepaid expenses and other |
100 | 717 | | 621 | 44 | | 1,482 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current assets |
1,724 | 9,539 | 12 | 5,067 | 283 | (2,516 | ) | 14,109 | ||||||||||||||||||||
Operating property and equipment |
| 18,165 | | 6,848 | 275 | | 25,288 | |||||||||||||||||||||
Other assets |
||||||||||||||||||||||||||||
Investments in subsidiaries |
3,363 | | 7,590 | | | (10,953 | ) | | ||||||||||||||||||||
Goodwill |
| | | 4,091 | | | 4,091 | |||||||||||||||||||||
Intangibles, net of accumulated amortization |
| 874 | | 1,400 | | | 2,274 | |||||||||||||||||||||
Other assets |
28 | 1,822 | | 251 | 40 | (35 | ) | 2,106 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total other assets |
3,391 | 2,696 | 7,590 | 5,742 | 40 | (10,988 | ) | 8,471 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 5,115 | $ | 30,400 | $ | 7,602 | $ | 17,657 | $ | 598 | $ | (13,504 | ) | $ | 47,868 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
||||||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||||||
Current maturities of long-term debt and capital leases |
$ | | $ | 1,172 | $ | | $ | 470 | $ | | $ | | $ | 1,642 | ||||||||||||||
Accounts payable |
| 1,292 | | 325 | 74 | (8 | ) | 1,683 | ||||||||||||||||||||
Payables to related parties, net |
| 1,868 | 504 | | 131 | (2,503 | ) | | ||||||||||||||||||||
Air traffic liability |
| 4,160 | | 1,504 | | | 5,664 | |||||||||||||||||||||
Frequent flyer liability |
| 2,745 | | | | | 2,745 | |||||||||||||||||||||
Other accrued liabilities |
92 | 2,018 | 3 | 1,096 | 97 | 5 | 3,311 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current liabilities |
92 | 13,255 | 507 | 3,395 | 302 | (2,506 | ) | 15,045 | ||||||||||||||||||||
Noncurrent liabilities |
||||||||||||||||||||||||||||
Long-term debt and capital leases, net of current maturities |
1,257 | 10,595 | 525 | 4,810 | | (35 | ) | 17,152 | ||||||||||||||||||||
Pension and postretirement benefits |
| 7,313 | | 124 | 40 | | 7,477 | |||||||||||||||||||||
Bankruptcy settlement obligations |
| 208 | | | | | 208 | |||||||||||||||||||||
Other liabilities |
130 | 2,912 | | 1,802 | 49 | (543 | ) | 4,350 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total noncurrent liabilities |
1,387 | 21,028 | 525 | 6,736 | 89 | (578 | ) | 29,187 | ||||||||||||||||||||
Stockholders equity (deficit) |
||||||||||||||||||||||||||||
Common stock |
7 | | | | | | 7 | |||||||||||||||||||||
Additional paid-in capital |
14,319 | 10,761 | 4,752 | 5,591 | 199 | (21,303 | ) | 14,319 | ||||||||||||||||||||
Accumulated other comprehensive loss |
(4,620 | ) | (4,705 | ) | (17 | ) | (9 | ) | (12 | ) | 4,743 | (4,620 | ) | |||||||||||||||
Retained earnings (deficit) |
(6,070 | ) | (9,939 | ) | 1,835 | 1,944 | 20 | 6,140 | (6,070 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total stockholders equity (deficit) |
3,636 | (3,883 | ) | 6,570 | 7,526 | 207 | (10,420 | ) | 3,636 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities and stockholders equity (deficit) |
$ | 5,115 | $ | 30,400 | $ | 7,602 | $ | 17,657 | $ | 598 | $ | (13,504 | ) | $ | 47,868 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)(Unaudited)
December 31, 2014 | ||||||||||||||||||||||||||||
American Airlines Group (Parent Company Only) |
American | US Airways Group (Parent Company Only) |
US Airways | Non- Guarantor Subsidiaries |
Eliminations and Reclassifications |
American Airlines Group Inc. Consolidated |
||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||||||
Cash |
$ | 1 | $ | 785 | $ | 2 | $ | 199 | $ | 7 | $ | | $ | 994 | ||||||||||||||
Short-term investments |
| 3,290 | | 3,016 | 3 | | 6,309 | |||||||||||||||||||||
Restricted cash and short-term investments |
| 650 | | 124 | | | 774 | |||||||||||||||||||||
Accounts receivable, net |
| 1,445 | | 324 | 15 | (13 | ) | 1,771 | ||||||||||||||||||||
Receivables from related parties, net |
1,893 | | 157 | 933 | 526 | (3,509 | ) | | ||||||||||||||||||||
Aircraft fuel, spare parts and supplies, net |
| 625 | | 294 | 85 | | 1,004 | |||||||||||||||||||||
Prepaid expenses and other |
| 462 | | 912 | 41 | (155 | ) | 1,260 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current assets |
1,894 | 7,257 | 159 | 5,802 | 677 | (3,677 | ) | 12,112 | ||||||||||||||||||||
Operating property and equipment |
| 16,299 | | 6,506 | 279 | | 23,084 | |||||||||||||||||||||
Other assets |
||||||||||||||||||||||||||||
Investments in subsidiaries |
847 | | 6,870 | | | (7,717 | ) | | ||||||||||||||||||||
Goodwill |
| | | 4,090 | | 1 | 4,091 | |||||||||||||||||||||
Intangibles, net of accumulated amortization |
| 815 | | 1,425 | | | 2,240 | |||||||||||||||||||||
Other assets |
53 | 1,921 | | 267 | 38 | (35 | ) | 2,244 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total other assets |
900 | 2,736 | 6,870 | 5,782 | 38 | (7,751 | ) | 8,575 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 2,794 | $ | 26,292 | $ | 7,029 | $ | 18,090 | $ | 994 | $ | (11,428 | ) | $ | 43,771 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
||||||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||||||
Current maturities of long-term debt and capital leases |
$ | | $ | 1,230 | $ | | $ | 477 | $ | 1 | $ | | $ | 1,708 | ||||||||||||||
Accounts payable |
| 1,029 | | 287 | 61 | | 1,377 | |||||||||||||||||||||
Payables to related parties, net |
| 2,563 | 634 | 73 | 239 | (3,509 | ) | | ||||||||||||||||||||
Air traffic liability |
| 2,989 | | 1,263 | | | 4,252 | |||||||||||||||||||||
Frequent flyer liability |
| 1,823 | | 984 | | | 2,807 | |||||||||||||||||||||
Other accrued liabilities |
14 | 1,886 | 3 | 1,253 | 138 | (3 | ) | 3,291 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current liabilities |
14 | 11,520 | 637 | 4,337 | 439 | (3,512 | ) | 13,435 | ||||||||||||||||||||
Noncurrent liabilities |
||||||||||||||||||||||||||||
Long-term debt and capital leases, net of current maturities |
758 | 10,004 | 524 | 4,945 | | (35 | ) | 16,196 | ||||||||||||||||||||
Pension and postretirement benefits |
| 7,400 | | 122 | 40 | | 7,562 | |||||||||||||||||||||
Mandatorily convertible preferred stock and other bankruptcy settlement obligations |
| 325 | | | | | 325 | |||||||||||||||||||||
Other liabilities |
1 | 2,615 | | 1,861 | 317 | (562 | ) | 4,232 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total noncurrent liabilities |
759 | 20,344 | 524 | 6,928 | 357 | (597 | ) | 28,315 | ||||||||||||||||||||
Stockholders equity (deficit) |
||||||||||||||||||||||||||||
Common stock |
7 | | | | | | 7 | |||||||||||||||||||||
Additional paid-in capital |
15,135 | 10,632 | 4,703 | 5,542 | 199 | (21,076 | ) | 15,135 | ||||||||||||||||||||
Accumulated other comprehensive loss |
(4,559 | ) | (4,645 | ) | (16 | ) | (8 | ) | (12 | ) | 4,681 | (4,559 | ) | |||||||||||||||
Retained earnings (deficit) |
(8,562 | ) | (11,559 | ) | 1,181 | 1,291 | 11 | 9,076 | (8,562 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total stockholders equity (deficit) |
2,021 | (5,572 | ) | 5,868 | 6,825 | 198 | (7,319 | ) | 2,021 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities and stockholders equity (deficit) |
$ | 2,794 | $ | 26,292 | $ | 7,029 | $ | 18,090 | $ | 994 | $ | (11,428 | ) | $ | 43,771 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)(Unaudited)
Six Months Ended June 30, 2015 | ||||||||||||||||||||||||||||
American Airlines Group (Parent Company Only) |
American | US Airways Group (Parent Company Only) |
US Airways | Non- Guarantor Subsidiaries |
Eliminations and Reclassifications |
American Airlines Group Inc. Consolidated |
||||||||||||||||||||||
Net cash provided by operating activities |
$ | 526 | $ | 3,935 | $ | 10 | $ | 340 | $ | 30 | $ | | $ | 4,841 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||||||
Capital expenditures and aircraft purchase deposits |
| (2,563 | ) | | (541 | ) | (35 | ) | | (3,139 | ) | |||||||||||||||||
Purchases of short-term investments |
| (3,080 | ) | | (2,013 | ) | | | (5,093 | ) | ||||||||||||||||||
Sales of short-term investments |
| 1,178 | | 2,258 | | | 3,436 | |||||||||||||||||||||
Decrease in restricted cash and short-term investments |
| 9 | | 18 | | | 27 | |||||||||||||||||||||
Proceeds from sale of an investment |
52 | | | | | | 52 | |||||||||||||||||||||
Proceeds from sale of property and equipment |
| 18 | | | 4 | | 22 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net cash provided by (used in) investing activities |
52 | (4,438 | ) | | (278 | ) | (31 | ) | | (4,695 | ) | |||||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||||||
Payments on long-term debt and capital leases |
| (881 | ) | | (226 | ) | | | (1,107 | ) | ||||||||||||||||||
Proceeds from issuance of long-term debt |
500 | 1,420 | | 76 | | | 1,996 | |||||||||||||||||||||
Deferred financing costs |
(7 | ) | (32 | ) | | (1 | ) | | | (40 | ) | |||||||||||||||||
Treasury stock repurchases |
(931 | ) | | | | | | (931 | ) | |||||||||||||||||||
Dividend payment |
(140 | ) | | | | | | (140 | ) | |||||||||||||||||||
Other financing activities |
| | | 34 | | | 34 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net cash provided by (used in) financing activities |
(578 | ) | 507 | | (117 | ) | | | (188 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net increase (decrease) in cash |
| 4 | 10 | (55 | ) | (1 | ) | | (42 | ) | ||||||||||||||||||
Cash at beginning of period |
1 | 785 | 2 | 199 | 7 | | 994 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Cash at end of period |
$ | 1 | $ | 789 | $ | 12 | $ | 144 | $ | 6 | $ | | $ | 952 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)(Unaudited)
Six Months Ended June 30, 2014 | ||||||||||||||||||||||||||||
American Airlines Group (Parent Company Only) |
American | US Airways Group (Parent Company Only) |
US Airways | Non- Guarantor Subsidiaries |
Eliminations and Reclassifications |
American Airlines Group Inc. Consolidated |
||||||||||||||||||||||
Net cash provided by operating activities |
$ | | $ | 1,683 | $ | | $ | 931 | $ | 23 | $ | | $ | 2,637 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||||||
Capital expenditures and aircraft purchase deposits |
| (1,828 | ) | | (626 | ) | (26 | ) | (198 | ) | (2,678 | ) | ||||||||||||||||
Purchases of short-term investments |
| (1,183 | ) | | (678 | ) | | | (1,861 | ) | ||||||||||||||||||
Sales of short-term investments |
| 1,523 | | 200 | | | 1,723 | |||||||||||||||||||||
Decrease in restricted cash and short-term investments |
| 52 | | 101 | | | 153 | |||||||||||||||||||||
Net proceeds from slot transaction |
| 299 | | 8 | | | 307 | |||||||||||||||||||||
Funds transferred to affiliates |
| (198 | ) | | | | 198 | | ||||||||||||||||||||
Proceeds from sale of property and equipment |
| 7 | | | 2 | | 9 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net cash used in investing activities |
| (1,328 | ) | | (995 | ) | (24 | ) | | (2,347 | ) | |||||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||||||
Payments on long-term debt and capital leases |
| (655 | ) | | (314 | ) | | (176 | ) | (1,145 | ) | |||||||||||||||||
Proceeds from issuance of long-term debt |
| 53 | | 481 | | | 534 | |||||||||||||||||||||
Deferred financing costs |
| (5 | ) | | (2 | ) | | | (7 | ) | ||||||||||||||||||
Sale-leaseback transactions |
| 411 | | | | | 411 | |||||||||||||||||||||
Exercise of stock options |
| | | 9 | | | 9 | |||||||||||||||||||||
Treasury stock repurchases |
| (7 | ) | | (21 | ) | | | (28 | ) | ||||||||||||||||||
Funds transferred to affiliates, net |
| | | (176 | ) | | 176 | | ||||||||||||||||||||
Other financing activities |
| | | 6 | | | 6 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net cash used in financing activities |
| (203 | ) | | (17 | ) | | | (220 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net increase (decrease) in cash |
| 152 | | (81 | ) | (1 | ) | | 70 | |||||||||||||||||||
Cash at beginning of period |
1 | 829 | 1 | 303 | 6 | | 1,140 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Cash at end of period |
$ | 1 | $ | 981 | $ | 1 | $ | 222 | $ | 5 | $ | | $ | 1,210 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
15. Subsequent Events
Share Repurchase Program and Dividend Declaration
In July 2015, the Company announced that its Board of Directors had authorized a new $2.0 billion share repurchase program to be completed by the end of 2016. Shares repurchased under the program may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The program does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at the Companys discretion.
Also in July 2015, the Company announced that its Board of Directors had declared a $0.10 per share dividend for shareholders of record on August 10, 2015, and payable on August 24, 2015. Any future dividends that may be declared and paid from time to time under the Companys capital deployment program will be subject to market and economic conditions, applicable legal requirements and other relevant factors. The Companys capital deployment program does not obligate it to continue a dividend for any fixed period, and payment of dividends may be suspended at any time at the Companys discretion.
Distribution of AAG Common Stock
On July 14, 2015, approximately 0.6 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and 0.1 million shares were withheld or sold on account of related tax obligations.
35
ITEM 1B. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Operating revenues: |
||||||||||||||||
Mainline passenger |
$ | 4,947 | $ | 5,352 | $ | 9,638 | $ | 10,258 | ||||||||
Regional passenger |
843 | 786 | 1,542 | 1,455 | ||||||||||||
Cargo |
161 | 178 | 322 | 346 | ||||||||||||
Other |
868 | 837 | 1,686 | 1,563 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating revenues |
6,819 | 7,153 | 13,188 | 13,622 | ||||||||||||
Operating expenses: |
||||||||||||||||
Aircraft fuel and related taxes |
1,197 | 1,897 | 2,267 | 3,768 | ||||||||||||
Salaries, wages and benefits |
1,536 | 1,441 | 3,121 | 2,839 | ||||||||||||
Regional expenses |
788 | 804 | 1,516 | 1,562 | ||||||||||||
Maintenance, materials and repairs |
302 | 346 | 606 | 678 | ||||||||||||
Other rent and landing fees |
269 | 289 | 539 | 574 | ||||||||||||
Aircraft rent |
226 | 214 | 451 | 430 | ||||||||||||
Selling expenses |
198 | 282 | 433 | 566 | ||||||||||||
Depreciation and amortization |
247 | 220 | 483 | 434 | ||||||||||||
Special items, net |
74 | 179 | 272 | (37 | ) | |||||||||||
Other |
776 | 763 | 1,534 | 1,512 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
5,613 | 6,435 | 11,222 | 12,326 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
1,206 | 718 | 1,966 | 1,296 | ||||||||||||
Nonoperating income (expense): |
||||||||||||||||
Interest income |
10 | 6 | 16 | 13 | ||||||||||||
Interest expense, net of capitalized interest |
(137 | ) | (139 | ) | (263 | ) | (307 | ) | ||||||||
Other, net |
(16 | ) | 16 | (80 | ) | 11 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total nonoperating expense, net |
(143 | ) | (117 | ) | (327 | ) | (283 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
1,063 | 601 | 1,639 | 1,013 | ||||||||||||
Income tax provision |
11 | 336 | 19 | 347 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 1,052 | $ | 265 | $ | 1,620 | $ | 666 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
36
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net income |
$ | 1,052 | $ | 265 | $ | 1,620 | $ | 666 | ||||||||
Other comprehensive income (loss), before tax: |
||||||||||||||||
Defined benefit pension plans and retiree medical |
(25 | ) | (58 | ) | (51 | ) | (102 | ) | ||||||||
Derivative financial instruments: |
||||||||||||||||
Change in fair value |
| 15 | | (52 | ) | |||||||||||
Reclassification into earnings |
(3 | ) | 5 | (9 | ) | 12 | ||||||||||
Unrealized gain (loss) on investments: |
||||||||||||||||
Net change in value |
(1 | ) | (2 | ) | | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive loss before tax |
(29 | ) | (40 | ) | (60 | ) | (142 | ) | ||||||||
Reversal of non-cash tax provision |
| 328 | | 328 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income |
$ | 1,023 | $ | 553 | $ | 1,560 | $ | 852 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
37
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except shares and per share amounts)
June 30, 2015 | December 31, 2014 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash |
$ | 789 | $ | 785 | ||||
Short-term investments |
5,192 | 3,290 | ||||||
Restricted cash and short-term investments |
641 | 650 | ||||||
Accounts receivable, net |
1,535 | 1,445 | ||||||
Aircraft fuel, spare parts and supplies, net |
665 | 625 | ||||||
Prepaid expenses and other |
717 | 462 | ||||||
|
|
|
|
|||||
Total current assets |
9,539 | 7,257 | ||||||
Operating property and equipment |
||||||||
Flight equipment |
23,688 | 21,646 | ||||||
Ground property and equipment |
5,426 | 5,217 | ||||||
Equipment purchase deposits |
1,102 | 1,128 | ||||||
|
|
|
|
|||||
Total property and equipment, at cost |
30,216 | 27,991 | ||||||
Less accumulated depreciation and amortization |
(12,051 | ) | (11,692 | ) | ||||
|
|
|
|
|||||
Total property and equipment, net |
18,165 | 16,299 | ||||||
Other assets |
||||||||
Intangibles, net of accumulated amortization of $382 and $376, respectively |
874 | 815 | ||||||
Other assets |
1,822 | 1,921 | ||||||
|
|
|
|
|||||
Total other assets |
2,696 | 2,736 | ||||||
|
|
|
|
|||||
Total assets |
$ | 30,400 | $ | 26,292 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||
Current liabilities |
||||||||
Current maturities of long-term debt and capital leases |
$ | 1,172 | $ | 1,230 | ||||
Accounts payable |
1,292 | 1,029 | ||||||
Accrued salaries and wages |
639 | 650 | ||||||
Air traffic liability |
4,160 | 2,989 | ||||||
Frequent flyer liability |
2,745 | 1,823 | ||||||
Payable to affiliates |
1,868 | 2,563 | ||||||
Other accrued liabilities |
1,379 | 1,236 | ||||||
|
|
|
|
|||||
Total current liabilities |
13,255 | 11,520 | ||||||
Noncurrent liabilities |
||||||||
Long-term debt and capital leases, net of current maturities |
10,595 | 10,004 | ||||||
Pension and postretirement benefits |
7,313 | 7,400 | ||||||
Deferred gains and credits, net |
270 | 271 | ||||||
Bankruptcy settlement obligations |
208 | 325 | ||||||
Other liabilities |
2,642 | 2,344 | ||||||
|
|
|
|
|||||
Total noncurrent liabilities |
21,028 | 20,344 | ||||||
Commitments and contingencies |
||||||||
Stockholders deficit |
||||||||
Common stock, $1.00 par value; 1,000 shares authorized, issued and outstanding |
| | ||||||
Additional paid-in capital |
10,761 | 10,632 | ||||||
Accumulated other comprehensive loss |
(4,705 | ) | (4,645 | ) | ||||
Accumulated deficit |
(9,939 | ) | (11,559 | ) | ||||
|
|
|
|
|||||
Total stockholders deficit |
(3,883 | ) | (5,572 | ) | ||||
|
|
|
|
|||||
Total liabilities and stockholders deficit |
$ | 30,400 | $ | 26,292 | ||||
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
38
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)(Unaudited)
Six Months Ended June 30, | ||||||||
2015 | 2014 | |||||||
Net cash provided by operating activities |
$ | 3,935 | $ | 1,683 | ||||
Cash flows from investing activities: |
||||||||
Capital expenditures and aircraft purchase deposits |
(2,563 | ) | (1,828 | ) | ||||
Purchases of short-term investments |
(3,080 | ) | (1,183 | ) | ||||
Sales of short-term investments |
1,178 | 1,523 | ||||||
Decrease in restricted cash and short-term investments |
9 | 52 | ||||||
Net proceeds from slot transaction |
| 299 | ||||||
Funds transferred to affiliates, net |
| (198 | ) | |||||
Proceeds from sale of property and equipment |
18 | 7 | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(4,438 | ) | (1,328 | ) | ||||
Cash flows from financing activities: |
||||||||
Payments on long-term debt and capital leases |
(881 | ) | (655 | ) | ||||
Proceeds from issuance of long-term debt |
1,420 | 53 | ||||||
Deferred financing costs |
(32 | ) | (5 | ) | ||||
Sale-leaseback transactions |
| 411 | ||||||
Treasury stock repurchases |
| (7 | ) | |||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
507 | (203 | ) | |||||
|
|
|
|
|||||
Net increase in cash |
4 | 152 | ||||||
Cash at beginning of period |
785 | 829 | ||||||
|
|
|
|
|||||
Cash at end of period |
$ | 789 | $ | 981 | ||||
|
|
|
|
|||||
Non-cash investing and financing activities: |
||||||||
Settlement of bankruptcy obligations |
$ | 35 | $ | 4,998 | ||||
Capital lease obligations |
| 361 | ||||||
Supplemental information: |
||||||||
Interest paid, net of amounts capitalized |
294 | 226 | ||||||
Income taxes paid |
3 | 3 |
See accompanying notes to condensed consolidated financial statements.
39
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of American Airlines, Inc. (American) should be read in conjunction with the consolidated financial statements contained in Americans Annual Report on Form 10-K for the year ended December 31, 2014. American is a wholly-owned subsidiary of American Airlines Group Inc. (AAG). All significant intercompany transactions have been eliminated.
Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented. The preparation of financial statements in accordance with accounting principles generally accepted in the United States (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of long-lived and intangible assets, the frequent flyer program, pensions, retiree medical and other benefits and the deferred tax asset valuation allowance.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services. ASU 2014-09 is effective for public entities for interim and annual reporting periods beginning after December 15, 2016. On July 9, 2015, the FASB deferred the effective date of this new standard to December 15, 2017 for public entities. Early application is permitted, but not before interim and annual reporting periods beginning after December 15, 2016. Entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. American is currently evaluating the requirements of ASU 2014-09 and has not yet determined its impact on Americans condensed consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. ASU 2015-03 is not expected to have a material impact on Americans condensed consolidated financial statements.
2. Emergence from Chapter 11
Chapter 11 Reorganization
On November 29, 2011 (the Petition Date), AMR Corporation (AMR, renamed American Airlines Group Inc., upon the closing of the Merger), its principal subsidiary, American, and certain of AMRs other direct and indirect domestic subsidiaries (collectively, the Debtors), filed voluntary petitions for relief (the Chapter 11 Cases) under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). On October 21, 2013, the Bankruptcy Court entered an order (the Confirmation Order) approving and confirming the Debtors fourth amended joint plan of reorganization (as amended, the Plan).
On December 9, 2013 (the Effective Date), the Debtors consummated their reorganization pursuant to the Plan, principally through the transactions contemplated by an Agreement and Plan of Merger (as amended, the Merger Agreement), dated as of February 13, 2013, by and among AMR, AMR Merger Sub, Inc. (Merger Sub) and US Airways Group, Inc. (US Airways Group), pursuant to which Merger Sub merged with and into US Airways Group (the Merger), with US Airways Group surviving as a wholly-owned subsidiary of AAG following the Merger.
From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, all actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the U.S. Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the U.S. Bankruptcy Court to the extent the parties to such litigation have obtained relief from the permanent injunction.
40
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)
In connection with the Chapter 11 Cases, trading in AMRs common stock and certain debt securities on the New York Stock Exchange (NYSE) was suspended on January 5, 2012, and AMRs common stock and such debt securities were delisted by the SEC from the NYSE on January 30, 2012. On January 5, 2012, AMRs common stock began trading under the symbol AAMRQ (CUSIP 001765106) on the OTCQB marketplace, operated by OTC Markets Group. Pursuant to the Plan, on the Effective Date (i) all existing shares of AAGs old common stock formerly traded under the symbol AAMRQ were canceled and (ii) AAG was authorized to issue up to approximately 544 million shares of common stock, par value $0.01 per share, of AAG (AAG Common Stock) by operation of the Plan (excluding shares of AAG Common Stock issuable pursuant to the Merger Agreement). On the Effective Date, the AAG Common Stock was listed on the NASDAQ Global Select Market under the symbol AAL, and AAMRQ ceased trading on the OTCQB marketplace.
Upon emergence from Chapter 11, AAG issued approximately 53 million shares of AAG Common Stock to AMRs old equity holders and certain of the Debtors employees, and issued 168 million shares of AAG Series A Convertible Preferred Stock, par value $0.01 per share (the AAG Series A Preferred Stock), which was mandatorily convertible into new AAG Common Stock during the 120-day period after the Effective Date, to certain creditors and employees of the Debtors (including shares deposited in the Disputed Claims Reserve (as defined in the Plan)). In accordance with the terms of the Plan, former holders of AMR common stock (previously traded under the symbol AAMRQ) received, for each share of AMR common stock, an initial distribution of approximately 0.0665 shares of the AAG Common Stock as of the Effective Date. Following the Effective Date, former holders of AMR common stock and those deemed to be treated as such in connection with the elections made pursuant to the Plan have received through December 31, 2014, additional aggregate distributions of shares of AAG Common Stock of approximately 0.6776 shares of AAG Common Stock for each share of AMR common stock previously held, and may continue to receive additional distributions. As of the Effective Date, the adjusted total Double-Dip General Unsecured Claims (as defined in the Plan) were approximately $2.5 billion and the Allowed Single-Dip General Unsecured Claims (as defined in the Plan) were approximately $2.5 billion.
The Disputed Claims Reserve established under the Plan initially was issued 30.4 million shares, which shares are reserved for distributions to holders of disputed Single-Dip Unsecured Claims (Single-Dip Equity Obligations) whose claims ultimately become allowed as well as to certain AMR labor groups and employees who received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. As of December 31, 2014, the Disputed Claims Reserve held 26.8 million shares of AAG Common Stock pending distribution of those shares in accordance with the Plan. On February 10, 2015, approximately 0.8 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and American repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $4 million from the Disputed Claims Reserve at the then-prevailing market price in order to fund cash tax obligations resulting from this distribution. As of June 30, 2015, there were approximately 26.0 million shares of AAG Common Stock remaining in the Disputed Claims Reserve. On July 14, 2015, approximately 0.6 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and American repurchased 0.1 million shares of AAG Common Stock for an aggregate of $2 million from the Disputed Claims Reserve at the then-prevailing market price in order to fund cash tax obligations resulting from this distribution. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. To the extent that any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to AAG but rather will be distributed to former AMR shareholders as of the Effective Date. American is not required to distribute additional shares above the limits contemplated by the Plan.
Several parties have filed appeals seeking reconsideration of the Confirmation Order. See Note 12 for more information.
The reconciliation process with respect to the remaining claims is expected to take considerable time. Americans estimate of the amounts of disputed claims that will ultimately become allowed Single-Dip Unsecured Claims are included in bankruptcy settlement obligations on Americans condensed consolidated balance sheet as of June 30, 2015. As these claims are resolved, or where better information becomes available and is evaluated, American will make adjustments to the liabilities recorded on its condensed consolidated financial statements as appropriate. Any such adjustments could be material to Americans financial position or results of operations in any given period.
Availability and Utilization of Net Operating Losses
Upon emergence from bankruptcy, American experienced an ownership change as defined in Section 382 of the Internal Revenue Code of 1986, as amended (Section 382), which could potentially limit the ability to utilize certain tax attributes including Americans substantial net operating losses (NOLs). The general limitation rules for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. American elected to be covered by certain special rules for federal income tax purposes that permit approximately $9.5 billion of the federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382.
41
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)
Moreover, an ownership change subsequent to Americans emergence from bankruptcy may further limit or effectively eliminate the ability to utilize Americans NOL Carryforwards and other tax attributes. To reduce the risk of a potential adverse effect on Americans ability to utilize the NOL Carryforwards, AAGs Certificate of Incorporation contains transfer restrictions applicable to certain substantial shareholders. Although the purpose of these transfer restrictions is to prevent an ownership change from occurring, there can be no assurance that an ownership change will not occur even with these transfer restrictions. A copy of AAGs Certificate of Incorporation was attached as Exhibit 3.1 to a Current Report on Form 8-K filed by AAG with the SEC on December 9, 2013.
3. Bankruptcy Settlement Obligations
The components of bankruptcy settlement obligations on the condensed consolidated balance sheets are as follows (in millions):
June 30, 2015 | December 31, 2014 | |||||||
Single-Dip and Double-Dip Equity Obligations |
$ | 159 | $ | 248 | ||||
Labor-related deemed claim |
49 | 77 | ||||||
|
|
|
|
|||||
Total |
$ | 208 | $ | 325 | ||||
|
|
|
|
The amount of the remaining Single-Dip Equity Obligations at June 30, 2015 is Americans estimate of its obligation for disputed claims of $159 million and is calculated based on the fair value of the shares expected to be issued, measured as if the obligations were settled using the closing price of AAG Common Stock at June 30, 2015. Additional allowed claims will receive 30.7553 shares, subject to reduction for expenses of the Disputed Claims Reserve, including tax liabilities, for each $1,000 of allowed claims. For accounting purposes, the value of the shares expected to be issued is marked-to-market each period until issued. Accordingly, changes in the value of AAG Common Stock could result in future increases and decreases in this obligation.
In exchange for employees contributions to the successful reorganization of AAG, including agreeing to reductions in pay and benefits, AAG and American agreed in the Plan to provide each employee group a deemed claim which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. The fair value based on the expected number of shares to be distributed to satisfy this deemed claim, as adjusted, was approximately $1.5 billion. As of June 30, 2015, the remaining liability to certain AMR labor groups and employees of $49 million represents the estimated fair value of the remaining shares expected to be issued in satisfaction of such obligation, measured as if the obligation was settled using the closing price of AAG Common Stock at June 30, 2015. For accounting purposes, the value of the remaining shares expected to be issued to satisfy the labor claim is marked-to-market each period until issued. Accordingly, changes in the value of AAG Common Stock could result in future increases and decreases in this obligation.
On February 10, 2015 and July 14, 2015, approximately 0.8 million and 0.6 million shares, respectively, of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and 0.1 million shares were withheld or sold on account of related tax obligations.
4. Special Items
Special items, net on the condensed consolidated statements of operations are as follows (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Mainline operating special items, net (a) |
$ | 74 | $ | 179 | $ | 272 | $ | (37 | ) |
(a) | The 2015 second quarter mainline operating special items totaled a net charge of $74 million, which principally included $137 million of merger integration expenses related to information technology, professional fees, severance, share-based compensation, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. These charges were offset in part by a net $68 million credit for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations. The 2015 six month period mainline operating special items totaled a net charge of $272 million, which principally included $285 million of merger integration expenses as described above and a net $64 million charge related to Americans new pilot joint collective bargaining agreement. These charges were offset in part by a net $73 million credit for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations. |
The 2014 second quarter mainline operating special items totaled a net charge of $179 million, which principally included $99 million of merger integration expenses related to information technology, professional fees, severance, share-based compensation,
42
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)
re-branding of aircraft and airport facilities, relocation and training as well as a net $40 million charge for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations and $26 million in charges related to the buyout of leases associated with certain aircraft. The 2014 six month period mainline operating special items totaled a net credit of $37 million, which principally included a $305 million gain on the sale of Slots at Ronald Reagan Washington National Airport and a net $16 million credit for bankruptcy related items as described above. These special credits were offset in part by $234 million of merger integration expenses as described above as well as $29 million in charges primarily related to the buyout of leases associated with certain aircraft.
The following additional amounts are also included in the condensed consolidated statements of operations as follows (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Regional operating special items, net (a) |
$ | 1 | $ | 1 | $ | 4 | $ | 2 | ||||||||
Nonoperating special items, net (b) |
11 | (4 | ) | 3 | 40 | |||||||||||
Income tax special items, net (c) |
7 | 335 | 15 | 342 |
(a) | The 2015 and 2014 second quarter and six month period regional operating special items principally related to merger integration expenses. |
(b) | The 2015 second quarter nonoperating special items totaled a net charge of $11 million and primarily included non-cash write offs of unamortized debt discount and debt issuance costs associated with refinancing Americans secured term loan facilities. The 2015 six month period nonoperating special items totaled a net charge of $3 million and principally included $20 million in charges primarily related to non-cash write offs of unamortized debt discount and debt issuance costs associated with the debt refinancing as described above and the prepayment of certain aircraft financings, offset in part by a $17 million early debt extinguishment gain associated with the repayment of Americans AAdvantage loan with Citibank. |
The 2014 six month period nonoperating special charges of $40 million were primarily due to non-cash interest accretion on bankruptcy settlement obligations.
(c) | The 2015 second quarter and six month period tax special items were the result of a non-cash deferred income tax provision related to certain indefinite-lived intangible assets. |
During the 2014 second quarter, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, American recorded a special non-cash tax provision of $328 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of Americans fuel hedging contracts. In accordance with GAAP, American retained the $328 million tax provision in OCI until the last contract was settled or terminated. In addition, American recorded a special $7 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets in the 2014 second quarter. The 2014 six month period included the $328 million non-cash tax provision related to the settlement of fuel hedges discussed above as well as a special $14 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.
43
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)
5. Debt
Long-term debt and capital lease obligations included in the condensed consolidated balance sheets consisted of (in millions):
June 30, 2015 | December 31, 2014 | |||||||
Secured |
||||||||
2013 Credit Facilities, variable interest rate of 3.25%, installments through 2020 |
$ | 1,867 | $ | 1,872 | ||||
2014 Credit Facilities, variable interest rate of 3.50%, installments through 2021 |
750 | 750 | ||||||
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.38% to 7.00%, maturing from 2017 to 2027 |
5,155 | 4,271 | ||||||
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.50% to 8.10%, maturing from 2015 to 2027 |
1,964 | 1,860 | ||||||
Special facility revenue bonds, fixed interest rates ranging from 5.00% to 8.50%, maturing from 2016 to 2035 |
1,082 | 1,071 | ||||||
AAdvantage Loan, effective rate of 8.30% |
| 433 | ||||||
Other secured obligations, fixed interest rates ranging from 4.19% to 12.24%, maturing from 2015 to 2028 |
951 | 992 | ||||||
|
|
|
|
|||||
11,769 | 11,249 | |||||||
|
|
|
|
|||||
Unsecured |
||||||||
Affiliate unsecured obligations |
27 | 27 | ||||||
|
|
|
|
|||||
27 | 27 | |||||||
|
|
|
|
|||||
Total long-term debt and capital lease obligations |
11,796 | 11,276 | ||||||
Less: Total unamortized debt discount |
29 | 42 | ||||||
Less: Current maturities |
1,172 | 1,230 | ||||||
|
|
|
|
|||||
Long-term debt and capital lease obligations, net of current maturities |
$ | 10,595 | $ | 10,004 | ||||
|
|
|
|
2013 Credit Facilities
On May 21, 2015, American refinanced its $1.9 billion term loan facility (the $1.9 billion 2015 Term Loan Facility and, together with a $1.4 billion revolving credit facility, the 2013 Credit Facilities) to extend the maturity date to June 29, 2020 and reduce the LIBOR margin from 3.00% to 2.75%. In addition, American entered into certain amendments to reflect the ability for American to make future modifications to the collateral pledged, subject to certain restrictions. The LIBOR margin under the $1.9 billion 2015 Term Loan Facility may vary based on Americans credit ratings, and on June 30, 2015 the LIBOR margin was further reduced to 2.50% due to an improvement in Americans credit ratings.
2014 Credit Facilities
On April 20, 2015, American refinanced its $750 million term loan facility (the $750 million 2015 Term Loan Facility and, together with a $400 million revolving credit facility, the 2014 Credit Facilities) to reduce the LIBOR margin from 3.50% to 3.00% and entered into certain amendments to reflect the release of certain existing collateral and the addition of certain new collateral, as well as the ability for American to make future modifications to the collateral pledged, subject to certain restrictions. The LIBOR margin under the $750 million 2015 Term Loan Facility may vary based on Americans credit ratings, and on June 30, 2015 the LIBOR margin was further reduced to 2.75% due to an improvement in Americans credit ratings.
2015-1 EETCs
In March 2015, American created two pass-through trusts which issued approximately $1.2 billion aggregate face amount of Series 2015-1 Class A and Class B EETCs in connection with the financing of 28 aircraft currently owned or scheduled to be delivered from July 2015 to September 2015 (the 2015 EETC Aircraft). The 2015-1 EETCs represent fractional undivided interests in the respective pass-through trusts and are not obligations of American. Proceeds received from the sale of EETCs are initially held by a depository in escrow for the benefit of the certificate holders until American issues equipment notes to the pass-through trusts, which purchase the notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by American and are not reported as debt on Americans condensed consolidated balance sheet because the proceeds held by the depository are not Americans assets.
As of June 30, 2015, $1.0 billion of the escrowed proceeds from the 2015-1 EETCs have been used to purchase equipment notes issued by American in two series: Series A equipment notes in the amount of $796 million bearing interest at 3.375% per annum and Series B equipment notes in the amount of $223 million bearing interest at 3.70% per annum. Interest and principal payments on the equipment notes are payable semi-annually in May and November of each year, beginning in November 2015. The final payments on the Series A and Series B equipment notes will be due in May 2027 and May 2023, respectively. These equipment notes are secured by liens on 19 of the 2015 EETC Aircraft. The remaining $195 million of escrowed proceeds will be used to purchase equipment notes as the remaining nine new aircraft are delivered.
44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)
AAdvantage Loan
Effective January 2, 2015, American exercised its loan repayment right with respect to the full value of the outstanding balance of the AAdvantage Loan with Citibank for $400 million. In connection with the repayment, in the first quarter of 2015, American recognized an early debt extinguishment gain of approximately $17 million.
Obligations Associated with Special Facility Revenue Bonds
In December 2014, American acquired approximately $112 million aggregate principal amount of special facility revenue bonds related to the Tulsa International Airport, when such bonds were mandatorily tendered to American. The acquisition of these bonds resulted in an $11 million reduction of debt on Americans consolidated balance sheet and a $50 million reduction of a long-term operating lease obligation included in other long-term liabilities on Americans consolidated balance sheet as of December 31, 2014. American exercised its option to remarket approximately $104 million of these bonds in May 2015. The remarketed bonds will initially bear a coupon interest rate of 5% from the date of initial issuance and delivery of the bonds on May 27, 2015, until the day preceding June 1, 2025, on which date the bonds will be subject to mandatory tender. In connection with the remarketing of these special facility revenue bonds, American received cash proceeds of $112 million and recognized a total obligation of $62 million. Of that total obligation, $11 million is reflected as a capital lease and $51 million is reflected in other long-term liabilities on Americans condensed consolidated balance sheet as of June 30, 2015.
In June 2015, American exercised its right to adjust the interest rate on approximately $365 million aggregate principal amount of special facility revenue bonds, reflected as debt on its condensed consolidated balance sheet related to the John F. Kennedy International Airport. In connection with the adjustment to a new interest rate, the bonds are required to be purchased by American on August 3, 2015. American is in the process of remarketing the bonds at the new interest rate. The remarketed bonds are expected to be subject to mandatory tender for purchase by American on August 1, 2016. As a result, American reclassified $365 million to current maturities of long-term debt on its condensed consolidated balance sheet as of June 30, 2015.
Other Aircraft Financing Transactions
In the first six months of 2015, American prepaid $72 million principal amount of outstanding debt secured by certain aircraft.
In the first six months of 2015, American entered into loan agreements to borrow $389 million in connection with the financing of certain aircraft deliveries. The notes mature in 2025 through 2027 and bear interest at a rate of LIBOR plus an applicable margin.
6. Income Taxes
At December 31, 2014, American had approximately $10.3 billion of gross NOL Carryforwards to reduce future federal taxable income, substantially all of which are expected to be available for use in 2015. American is a member of AAGs consolidated federal and certain state income tax returns. The amount of federal and state NOL Carryforwards available in those returns is $10.1 billion and $4.6 billion, respectively, substantially all of which is expected to be available for use in 2015. The federal NOL Carryforwards will expire beginning in 2022 if unused. These NOL Carryforwards include an unrealized tax benefit of $712 million related to the implementation of share-based compensation accounting guidance that will be recorded in equity when realized. American also had approximately $3.9 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2014, which will expire in years 2015 through 2034 if unused. Americans ability to deduct its NOL Carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an ownership change has occurred. American experienced an ownership change in connection with its emergence from the Chapter 11 Cases. The general limitation rules of Section 382 for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. American elected to be covered by certain special rules for federal income tax purposes that permit approximately $9.5 billion of its federal NOL Carryforwards to be utilized without regard to the Section 382 annual limitation rules. Similar limitations may apply for state income tax purposes. Americans ability to utilize any new NOL Carryforwards arising after the ownership change is not affected by the annual limitation rules imposed by Section 382 unless another ownership change occurs.
At December 31, 2014, American had an Alternative Minimum Tax (AMT) credit carryforward of approximately $435 million available for federal income tax purposes, which is available for an indefinite period. Americans net deferred tax assets, which include the NOL Carryforwards, are subject to a full valuation allowance. At December 31, 2014, the federal and state valuation allowances were $5.1 billion and $208 million, respectively. In accordance with GAAP, utilization of the NOL Carryforwards after December 9, 2013 will result in a corresponding decrease in the valuation allowance and offset Americans tax provision dollar for dollar.
American provides a valuation allowance for deferred tax assets when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. American considers all available positive and negative evidence and makes certain assumptions. American considers
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)
many factors in evaluating the realizability of its deferred tax assets including risks associated with merger integration as well as other factors, which continue to be affected by conditions beyond Americans control, such as the condition of the economy, the level and volatility of fuel prices and travel demand. American has concluded as of June 30, 2015 that the valuation allowance was still needed on its deferred tax asset based on the weight of the factors described above.
For the three and six months ended June 30, 2015, American recorded a special $7 million and $15 million, respectively, non-cash deferred income tax provision related to certain indefinite-lived intangible assets. In addition, for the three and six months ended June 30, 2015, American recorded $4 million and $4 million, respectively, of state and international income tax expense related to certain states and other jurisdictions where NOLs were limited or unavailable to be used.
During the second quarter of 2014, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, American recorded a special non-cash tax provision of $328 million in the statement of operations for the second quarter of 2014 that reversed the non-cash tax provision which was recorded in OCI, a subset of stockholders equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of Americans fuel hedging contracts. In accordance with GAAP, American retained the $328 million tax provision in OCI until the last contract was settled or terminated. In addition, American recorded a special $7 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets in the 2014 second quarter. The 2014 six month period included the $328 million non-cash tax provision related to the settlement of fuel hedges discussed above as well as a special $14 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.
For the three and six months ended June 30, 2014, American recorded $1 million and $5 million, respectively, of state and international income tax expense related to certain states and other jurisdictions where NOLs were limited or unavailable to be used.
7. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
American utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Americans short-term investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. No changes in valuation techniques or inputs occurred during the six months ended June 30, 2015.
Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):
Fair Value Measurements as of June 30, 2015 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Short-term investments (1), (2): |
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Money market funds |
$ | 207 | $ | 207 | $ | | $ | | ||||||||
Repurchase agreements |
43 | | 43 | | ||||||||||||
Corporate obligations |
2,778 | | 2,778 | | ||||||||||||
Bank notes / certificates of deposit / time deposits |
2,164 | | 2,164 | | ||||||||||||
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5,192 | 207 | 4,985 | | |||||||||||||
Restricted cash and short-term investments (1) |
641 | 641 | | | ||||||||||||
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Total |
$ | 5,833 | $ | 848 | $ | 4,985 | $ | | ||||||||
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(1) | Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other comprehensive loss at each measurement date. |
(2) | All short-term investments are classified as available-for-sale and stated at fair value. In addition, all short-term investments mature in one year or less except for $424 million of corporate obligations and $1.3 billion of bank notes/certificates of deposit/time deposits. |
There were no Level 1 to Level 2 transfers during the six months ended June 30, 2015.
Venezuela Cash and Short-term Investments
As of June 30, 2015, American had approximately $629 million of unrestricted cash and short-term investments held in Venezuelan bolivars. This balance includes approximately $621 million valued at 6.3 bolivars to the U.S. dollar and approximately $8 million valued at 12.8 bolivars to the U.S. dollar, with the rate depending on the date American submitted its repatriation request to the Venezuelan government. These rates are materially more favorable than the exchange rates currently prevailing for other transactions conducted outside of the Venezuelan governments currency exchange system.
46
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)
During 2014, American significantly reduced capacity in the Venezuelan market and is no longer accepting bolivars as payment for airline tickets. American is monitoring this situation closely and continues to evaluate its holdings of Venezuelan bolivars for additional foreign currency losses or other accounting adjustments, which could be material, particularly in light of the additional uncertainty posed by the recent changes to the foreign exchange regulations and the continued deterioration of economic conditions in Venezuela. More generally, fluctuations in foreign currencies, including devaluations, c