Company Quick10K Filing
Quick10K
American Airlines Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$33.95 445 $15,100
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-12 Shareholder Vote
8-K 2019-06-09 Regulation FD
8-K 2019-05-20 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-16 Other Events, Exhibits
8-K 2019-05-16 Other Events, Exhibits
8-K 2019-04-26 Earnings, Regulation FD, Exhibits
8-K 2019-04-14 Regulation FD
8-K 2019-04-09 Regulation FD, Exhibits
8-K 2019-03-25 Regulation FD
8-K 2019-02-12 Other Events
8-K 2019-01-24 Earnings, Regulation FD, Exhibits
8-K 2019-01-24 Earnings, Regulation FD, Exhibits
8-K 2019-01-10 Regulation FD, Exhibits
8-K 2018-12-10 Enter Agreement, Off-BS Arrangement
8-K 2018-10-25 Earnings, Regulation FD, Exhibits
8-K 2018-10-09 Regulation FD, Exhibits
8-K 2018-09-17 Enter Agreement, Off-BS Arrangement
8-K 2018-09-05 Regulation FD, Exhibits
8-K 2018-07-26 Earnings, Regulation FD, Exhibits
8-K 2018-07-11 Regulation FD, Exhibits
8-K 2018-06-13 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-05-15 Enter Agreement, Off-BS Arrangement
8-K 2018-05-02 Other Events
8-K 2018-04-25 Other Events, Exhibits
8-K 2018-04-10 Regulation FD, Exhibits
8-K 2018-04-09 Enter Agreement, Leave Agreement, Other Events, Exhibits
8-K 2018-01-25 Earnings, Regulation FD, Exhibits
8-K 2018-01-10 Regulation FD, Exhibits
MGEE MGE Energy 2,330
TALO Talos Energy 1,540
RMAX RE/MAX 669
TK Teekay 423
CALX Calix 376
ALPN Alpine Immune Sciences 116
DRIV Digital River 14
AEXE AIM Exploration 0
WESTG Westgate Acquisitions 0
IMPV Imperva 0
AAL 2019-03-31
Part I: Financial Information
Item 1A. Condensed Consolidated Financial Statements of American Airlines Group Inc.
Item 1B. Condensed Consolidated Financial Statements of American Airlines, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii: Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 ex10110q2019.htm
EX-31.1 ex31110q2019.htm
EX-31.2 ex31210q2019.htm
EX-31.3 ex31310q2019.htm
EX-31.4 ex31410q2019.htm
EX-32.1 ex32110q2019.htm
EX-32.2 ex32210q2019.htm

American Airlines Group Earnings 2019-03-31

AAL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 aalq110-q033119.htm 10-Q Q1'19 04.26.19 Document


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 FORM 10-Q
 
 
 
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2019
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)
 
(Registrant’s 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)
 
(Registrant’s 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.
Yes
 
No
American Airlines, Inc.
Yes
 
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). 
American Airlines Group Inc.
Yes
 
No
American Airlines, Inc.
Yes
 
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
American Airlines Group Inc.
☒ Large Accelerated Filer
☐ Accelerated Filer
☐ Non-accelerated Filer
☐ Smaller Reporting Company
☐ Emerging Growth Company
American Airlines, Inc.
☐ Large Accelerated Filer
☐ Accelerated Filer
☒ Non-accelerated Filer
☐ Smaller Reporting Company
☐ Emerging Growth Company
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
American Airlines Group Inc.
 
American Airlines, Inc.
 
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
 
No
American Airlines, Inc.
Yes
 
No
As of April 22, 2019, there were 444,835,115 shares of American Airlines Group Inc. common stock outstanding.
As of April 22, 2019, 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 March 31, 2019
Table of Contents
 
 
Page
PART I: FINANCIAL INFORMATION
Item 1A.
 
 
 
 
 
 
Item 1B.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II: OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.


1



General
This report is filed by American Airlines Group Inc. (AAG) and its wholly-owned subsidiary American Airlines, Inc. (American). References in this report to “we,” “us,” “our,” the “Company” and similar terms refer to AAG and its consolidated subsidiaries. References in this report to “mainline” refer to the operations of American only 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 Securities Act of 1933, as amended (the Securities Act), the Securities Exchange Act of 1934, as amended (the Exchange Act), and 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 our plans, objectives, expectations, intentions, estimates and strategies for the future, and other statements that are not historical facts. 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 I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Part II, Item 1A. Risk Factors and other risks and uncertainties listed from time to time in our filings with the Securities and Exchange Commission (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 report or as of the dates indicated in the statements.

2



PART I: FINANCIAL INFORMATION
This 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.


3



ITEM 1A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except shares and per share amounts)(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Operating revenues:
 
Passenger
$
9,658

 
$
9,480

Cargo
218

 
227

Other
708

 
694

Total operating revenues
10,584

 
10,401

Operating expenses:
 
 
 
Aircraft fuel and related taxes
1,726

 
1,763

Salaries, wages and benefits
3,090

 
3,017

Regional expenses
1,763

 
1,698

Maintenance, materials and repairs
561

 
469

Other rent and landing fees
503

 
467

Aircraft rent
327

 
309

Selling expenses
370

 
356

Depreciation and amortization
480

 
440

Special items, net
138

 
225

Other
1,251

 
1,261

Total operating expenses
10,209

 
10,005

Operating income
375

 
396

Nonoperating income (expense):
 
 
 
Interest income
33

 
25

Interest expense, net
(271
)
 
(262
)
Other income, net
108

 
79

Total nonoperating expense, net
(130
)
 
(158
)
Income before income taxes
245

 
238

Income tax provision
60

 
79

Net income
$
185

 
$
159

 
 
 
 
Earnings per common share:
 
 
 
Basic
$
0.41

 
$
0.34

Diluted
$
0.41

 
$
0.34

Weighted average shares outstanding (in thousands):
 
 
 
Basic
451,951

 
472,297

Diluted
453,429

 
474,598

Cash dividends declared per common share
$
0.10

 
$
0.10

See accompanying notes to condensed consolidated financial statements.

4



AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)(Unaudited) 
 
Three Months Ended March 31,
 
2019
 
2018
Net income
$
185

 
$
159

Other comprehensive income (loss), net of tax:
 
 
 
Pension, retiree medical and other postretirement benefits
(16
)
 
(16
)
Investments
3

 
(2
)
Total other comprehensive loss, net of tax
(13
)
 
(18
)
Total comprehensive income
$
172

 
$
141

See accompanying notes to condensed consolidated financial statements.


5



AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except shares and par value)
 
March 31, 2019
 
December 31, 2018
 
(Unaudited)
 
 
ASSETS
 
Current assets
 
 
 
Cash
$
337

 
$
275

Short-term investments
4,012

 
4,485

Restricted cash and short-term investments
156

 
154

Accounts receivable, net
1,876

 
1,706

Aircraft fuel, spare parts and supplies, net
1,666

 
1,522

Prepaid expenses and other
607

 
495

Total current assets
8,654

 
8,637

Operating property and equipment
 
 
 
Flight equipment
42,013

 
41,499

Ground property and equipment
8,932

 
8,764

Equipment purchase deposits
1,211

 
1,278

Total property and equipment, at cost
52,156

 
51,541

Less accumulated depreciation and amortization
(17,746
)
 
(17,443
)
Total property and equipment, net
34,410

 
34,098

Operating lease right-of-use assets
9,124

 
9,151

Other assets
 
 
 
Goodwill
4,091

 
4,091

Intangibles, net of accumulated amortization of $673 and $663, respectively
2,115

 
2,137

Deferred tax asset
1,007

 
1,145

Other assets
1,386

 
1,321

Total other assets
8,599

 
8,694

Total assets
$
60,787

 
$
60,580

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt and finance leases
$
3,370

 
$
3,294

Accounts payable
2,139

 
1,773

Accrued salaries and wages
1,217

 
1,427

Air traffic liability
5,930

 
4,339

Loyalty program liability
3,354

 
3,267

Operating lease liabilities
1,629

 
1,654

Other accrued liabilities
2,210

 
2,342

Total current liabilities
19,849

 
18,096

Noncurrent liabilities
 
 
 
Long-term debt and finance leases, net of current maturities
20,660

 
21,179

Pension and postretirement benefits
6,519

 
6,907

Loyalty program liability
5,214

 
5,272

Operating lease liabilities
7,785

 
7,902

Other liabilities
1,396

 
1,393

Total noncurrent liabilities
41,574

 
42,653

Commitments and contingencies

 

Stockholders’ equity (deficit)
 
 
 
Common stock, $0.01 par value; 1,750,000,000 shares authorized, 444,216,229 shares issued and outstanding at March 31, 2019; 460,610,870 shares issued and outstanding at December 31, 2018
5

 
5

Additional paid-in capital
4,371

 
4,964

Accumulated other comprehensive loss
(5,909
)
 
(5,896
)
Retained earnings
897

 
758

Total stockholders’ deficit
(636
)
 
(169
)
Total liabilities and stockholders’ equity (deficit)
$
60,787

 
$
60,580

See accompanying notes to condensed consolidated financial statements.

6



AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Net cash provided by operating activities
$
1,651

 
$
1,800

Cash flows from investing activities:
 
 
 
Capital expenditures and aircraft purchase deposits
(1,305
)
 
(779
)
Proceeds from sale of property and equipment and sale-leaseback transactions
359

 
22

Purchases of short-term investments
(570
)
 
(1,252
)
Sales of short-term investments
1,051

 
1,029

Decrease (increase) in restricted short-term investments
(1
)
 
24

Other investing activities
(14
)
 

Net cash used in investing activities
(480
)
 
(956
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
400

 
236

Payments on long-term debt and finance leases
(849
)
 
(568
)
Deferred financing costs
(6
)
 
(1
)
Treasury stock repurchases
(608
)
 
(461
)
Dividend payments
(46
)
 
(48
)
Net cash used in financing activities
(1,109
)
 
(842
)
Net increase in cash and restricted cash
62

 
2

Cash and restricted cash at beginning of period
286

 
398

Cash and restricted cash at end of period (1)
$
348

 
$
400

 
 
 
 
Non-cash transactions:
 
 
 
Right-of-use assets obtained in exchange for lease liabilities:
 
 
 
Operating leases
$
332

 
$
43

Finance leases
2

 

Supplemental information:
 
 
 
Interest paid, net
267

 
258

Income taxes paid
3

 
3

 
   
(1) The following table provides a reconciliation of cash and restricted cash to amounts reported within the condensed consolidated balance sheets:
Cash
$
337

 
$
297

Restricted cash included in restricted cash and short-term investments
11

 
103

Total cash and restricted cash
$
348

 
$
400

See accompanying notes to condensed consolidated financial statements.


7



AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)(Unaudited)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
(Deficit)
 
Total
Balance at December 31, 2018
$
5

 
$
4,964

 
$
(5,896
)
 
$
758

 
$
(169
)
Net income

 

 

 
185

 
185

Other comprehensive loss, net

 

 
(13
)
 

 
(13
)
Purchase and retirement of 16,947,393 shares of AAG common stock

 
(610
)
 

 

 
(610
)
Dividends declared on AAG common stock ($0.10 per share)

 

 

 
(46
)
 
(46
)
Issuance of 552,752 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes

 
(8
)
 

 

 
(8
)
Share-based compensation expense

 
25

 

 

 
25

Balance at March 31, 2019
$
5

 
$
4,371

 
$
(5,909
)
 
$
897

 
$
(636
)

 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
(Deficit)
 
Total
Balance at December 31, 2017
$
5

 
$
5,714

 
$
(5,776
)
 
$
(723
)
 
$
(780
)
Net income

 

 

 
159

 
159

Other comprehensive loss, net

 

 
(18
)
 

 
(18
)
Purchase and retirement of 8,431,150 shares of AAG common stock

 
(449
)
 

 

 
(449
)
Dividends declared on AAG common stock ($0.10 per share)

 

 

 
(48
)
 
(48
)
Issuance of 313,744 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes

 
(10
)
 

 

 
(10
)
Share-based compensation expense

 
24

 

 

 
24

Impact of adoption of Accounting Standards Update (ASU) 2016-01 related to financial instruments



 

 
60

 
60

Impact of adoption of ASU 2016-02 related to leases

 

 

 
197

 
197

Balance at March 31, 2018
$
5

 
$
5,279

 
$
(5,794
)
 
$
(355
)
 
$
(865
)
See accompanying notes to condensed consolidated financial statements.


8



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
1. Basis of Presentation and Recent Accounting Pronouncements
(a) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of American Airlines Group Inc. (we, us, our and similar terms, or AAG) should be read in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2018. The accompanying unaudited condensed consolidated financial statements include the accounts of AAG and its wholly-owned subsidiaries. AAG’s principal subsidiary is American Airlines, Inc. (American). 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 goodwill, impairment of long-lived and intangible assets, the loyalty program, as well as pension and retiree medical and other postretirement benefits.
In the fourth quarter of 2018, we adopted ASU 2016-02: Leases (Topic 842) (the New Lease Standard) as of January 1, 2018. In accordance with the New Lease Standard, 2018 periods have been recast to reflect the effects of this adoption. As a result of the adoption of the New Lease Standard, our first quarter of 2018 net income decreased by $27 million.
(b) Recent Accounting Pronouncements
ASU 2018-02: Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
This ASU provides the option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings due to the U.S. federal corporate income tax rate change as a result of H.R. 1, the 2017 Tax Cuts and Jobs Act (the 2017 Tax Act). The amount of the reclassification is the difference between the amount initially charged or credited directly to other comprehensive income at the previous U.S. federal corporate income tax rate that remains in accumulated other comprehensive income and the amount that would have been charged or credited directly to other comprehensive income using the newly enacted U.S. federal corporate income tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations. This standard is effective for interim and annual reporting periods beginning after December 15, 2018. In the first quarter of 2019, we adopted this standard retrospectively as of December 22, 2017, the date the 2017 Tax Act was enacted, which resulted in the recast of prior reporting periods. As a result of the adoption, we reclassified $622 million of stranded tax effects principally related to our pension plans from accumulated other comprehensive loss to retained earnings.

9


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)


2. Special Items, Net
Special items, net in the condensed consolidated statements of operations consisted of the following (in millions):
 
Three Months Ended March 31,
 
2019
 
2018
Fleet restructuring expenses (1)
$
83

 
$
112

Merger integration expenses (2)
37

 
59

Litigation settlement

 
40

Labor contract expenses

 
13

Other operating charges, net
18

 
1

Mainline operating special items, net
138

 
225

 
 
 
 
Mark-to-market adjustments on equity investments, net (3)
(76
)
 

Other nonoperating charges, net
7

 

Nonoperating special items, net
(69
)
 

 
 
 
 
Income tax special items, net (4)

 
22


     
(1) 
Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment grounded or expected to be grounded earlier than planned.
(2) 
Merger integration expenses included costs associated with integration projects, principally our technical operations, flight attendant, human resources and payroll systems.
(3) 
Mark-to-market adjustments on equity investments relate to net unrealized gains primarily associated with our equity investment in China Southern Airlines Company Limited (China Southern Airlines).
(4) 
Income tax special items for the three months ended March 31, 2018 included a $22 million charge to income tax expense to establish a required valuation allowance related to our estimated refund for Alternative Minimum Tax (AMT) credits.

10


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)


3. Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per common share (EPS) (in millions, except share and per share amounts):
 
Three Months Ended March 31,
 
2019
 
2018
Basic EPS:
 
 
 
Net income
$
185

 
$
159

Weighted average common shares outstanding (in thousands)
451,951

 
472,297

Basic EPS
$
0.41

 
$
0.34

 
 
 
 
Diluted EPS:
 
 
 
Net income for purposes of computing diluted EPS
$
185

 
$
159

Share computation for diluted EPS (in thousands):
 
 
 
Basic weighted average common shares outstanding
451,951

 
472,297

Dilutive effect of stock awards
1,478

 
2,301

Diluted weighted average common shares outstanding
453,429

 
474,598

Diluted EPS
$
0.41

 
$
0.34

 
 
 
 
Restricted stock unit awards excluded from the calculation of diluted EPS because inclusion would be antidilutive (in thousands)
2,267

 
1

4. Share Repurchase Programs and Dividends
In April 2018, we announced that our Board of Directors authorized a $2.0 billion share repurchase program that expires on December 31, 2020. Since July 2014, our Board of Directors has approved seven share repurchase programs aggregating $13.0 billion of authority. As of March 31, 2019, there was $1.1 billion of remaining authority to repurchase shares under our current $2.0 billion share repurchase program. Share repurchases under our repurchase programs 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 that may be made from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors. We are not obligated to repurchase any specific number of shares and our repurchase of AAG common stock may be limited, suspended or discontinued at any time at our discretion and without prior notice.
During the three months ended March 31, 2019, we repurchased 16.7 million shares of AAG common stock for $600 million at a weighted average cost per share of $36.02. Since the inception of our share repurchase programs in July 2014 through March 31, 2019, we repurchased 295.6 million shares of AAG common stock for $11.9 billion at a weighted average cost per share of $40.43.
In January 2019, our Board of Directors declared a cash dividend of $0.10 per share for stockholders of record as of February 6, 2019 and paid on February 20, 2019, totaling $46 million for the first three months of 2019.

11


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)


5. Revenue Recognition
Revenue
The following are the significant categories comprising our reported operating revenues (in millions):
 
Three Months Ended March 31,
 
2019
 
2018
Passenger revenue:
 
 
 
Passenger travel
$
8,772

 
$
8,630

Loyalty revenue - travel (1)
886

 
850

Total passenger revenue
9,658

 
9,480

Cargo
218

 
227

Other:
 
 
 
Loyalty revenue - marketing services
578

 
570

Other revenue
130

 
124

Total other revenue
708

 
694

Total operating revenues
$
10,584

 
$
10,401

 
    
(1) 
Loyalty revenue included in passenger revenue is principally comprised of mileage credit redemptions earned through travel and mileage credits sold to co-branded credit card and other partners. See "Loyalty Revenue" below for further discussion on these mileage credits.
The following is our total passenger revenue by geographic region (in millions):
 
Three Months Ended March 31,
 
2019
 
2018
Domestic
$
7,226

 
$
6,963

Latin America
1,371

 
1,445

Atlantic
673

 
669

Pacific
388

 
403

Total passenger revenue
$
9,658

 
$
9,480

We attribute passenger revenue by geographic region based upon the origin and destination of each flight segment.
Contract Balances
Our significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and other non-air travel awards, reported as loyalty program liability on the condensed consolidated balance sheets and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on the condensed consolidated balance sheets.
 
March 31, 2019
 
December 31, 2018
 
(In millions)
Loyalty program liability
$
8,568

 
$
8,539

Air traffic liability
5,930

 
4,339

Total
$
14,498

 
$
12,878


12


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)


The balance of the loyalty program liability fluctuates based on seasonal patterns, which impact the volume of mileage credits issued through travel or sold to co-branded credit card and other partners (deferral of revenue) and mileage credits redeemed (recognition of revenue). Changes in loyalty program liability are as follows (in millions):
Balance at December 31, 2018
$
8,539

Deferral of revenue
963

Recognition of revenue (1)
(934
)
Balance at March 31, 2019 (2)
$
8,568

 
(1) 
Principally relates to revenue recognized from the redemption of mileage credits for both air and non-air travel awards. Mileage credits are combined in one homogenous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period as well as miles that were issued during the period.
(2) 
Mileage credits can be redeemed at any time and do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months. As of March 31, 2019, our current loyalty program liability was $3.4 billion and represents our current estimate of revenue expected to be recognized in the next twelve months based on historical trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter.
The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel. The balance in our air traffic liability also fluctuates with seasonal travel patterns. The contract duration of passenger tickets is one year. Accordingly, any revenue associated with tickets sold for future travel will be recognized within twelve months. For the three months ended March 31, 2019, $2.6 billion of revenue was recognized in passenger revenue that was included in our air traffic liability at December 31, 2018.

13


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)


6. Debt
Long-term debt included in the condensed consolidated balance sheets consisted of (in millions):
 
March 31, 2019
 
December 31, 2018
Secured
 
 
 
2013 Credit Facilities, variable interest rate of 4.24%, installments through 2025
$
1,825

 
$
1,825

2014 Credit Facilities, variable interest rate of 4.49%, installments through 2021
1,215

 
1,215

April 2016 Credit Facilities, variable interest rate of 4.50%, installments through 2023
980

 
980

December 2016 Credit Facilities, variable interest rate of 4.48%, installments through 2023
1,225

 
1,225

Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.00% to 8.39%, averaging 4.17%, maturing from 2019 to 2029
11,059

 
11,648

Equipment loans and other notes payable, fixed and variable interest rates ranging from 2.34% to 7.89%, averaging 4.27%, maturing from 2019 to 2031
5,217

 
5,060

Special facility revenue bonds, fixed interest rates ranging from 5.00% to 8.00%, maturing from 2019 to 2031
798

 
798

 
22,319

 
22,751

Unsecured
 
 
 
5.50% senior notes, interest only payments until due in October 2019
750

 
750

4.625% senior notes, interest only payments until due in March 2020
500

 
500

 
1,250

 
1,250

Total long-term debt
23,569

 
24,001

Less: Total unamortized debt discount, premium and issuance costs
218

 
222

Less: Current maturities
3,286

 
3,213

Long-term debt, net of current maturities
$
20,065

 
$
20,566

The table below shows the maximum availability under revolving credit facilities, all of which were undrawn, as of March 31, 2019 (in millions):
2013 Revolving Facility
$
1,000

2014 Revolving Facility
1,543

April 2016 Revolving Facility
300

Total
$
2,843

The December 2016 Credit Facilities provide for a revolving credit facility that may be established in the future.
2019 Aircraft Financing Activities
Equipment Notes Issued in 2019
In the first three months of 2019, American entered into agreements under which it borrowed $400 million in connection with the financing of certain aircraft. Debt incurred under these agreements matures in 2031 and bears interest at variable rates (comprised of LIBOR plus an applicable margin) averaging 4.07% at March 31, 2019.
7. Income Taxes
At December 31, 2018, we had approximately $10.2 billion of federal net operating losses (NOLs) carried over from prior taxable years (NOL Carryforwards) to reduce future federal taxable income, substantially all of which we expect to be available for use in 2019. The federal NOL Carryforwards will expire beginning in 2022 if unused. We also had approximately $3.2 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2018, which will expire in years 2019 through 2038 if unused.

14


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)


At December 31, 2018, we had an AMT credit carryforward of approximately $339 million available for federal income tax purposes, which is expected to be fully refundable over the next several years as a result of the repeal of corporate AMT.
During the three months ended March 31, 2019, we recorded an income tax provision of $60 million, which was substantially non-cash as we utilized our NOLs as described above.
8. Fair Value Measurements
Assets Measured at Fair Value on a Recurring Basis
We utilize the market approach to measure fair value for our financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. Our 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 three months ended March 31, 2019.
Assets measured at fair value on a recurring basis are summarized below (in millions):
 
Fair Value Measurements as of March 31, 2019
 
Total
 
Level 1
 
Level 2
 
Level 3
Short-term investments (1) (2):
 
 
 
 
 
 
 
Money market funds
$
12

 
$
12

 
$

 
$

Corporate obligations
1,310

 

 
1,310

 

Bank notes/certificates of deposit/time deposits
2,465

 

 
2,465

 

Repurchase agreements
225

 

 
225

 

 
4,012

 
12

 
4,000

 

Restricted cash and short-term investments (1)
156

 
12

 
144

 

Long-term investments (3)
265

 
265

 

 

Total
$
4,433

 
$
289

 
$
4,144

 
$

 
     
(1) 
Unrealized gains or losses on 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. Our short-term investments mature in one year or less except for $1.2 billion of bank notes/certificates of deposit/time deposits and $188 million of corporate obligations.
(3) 
Long-term investments primarily include our equity investment in China Southern Airlines, in which we presently own a 2.2% equity interest, and are classified in other assets on the condensed consolidated balance sheets.
Fair Value of Debt
The fair value of our long-term debt was estimated using quoted market prices or discounted cash flow analyses, based on our current estimated incremental borrowing rates for similar types of borrowing arrangements. If our 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 our long-term debt, including current maturities, were as follows (in millions): 
 
March 31, 2019
 
December 31, 2018
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Long-term debt, including current maturities
$
23,351

 
$
23,634

 
$
23,779

 
$
23,775


15


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)


9. Employee Benefit Plans
The following table provides the components of net periodic benefit cost (income) (in millions):
 
 
Pension Benefits
 
Retiree Medical and Other
Postretirement Benefits
Three Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
Service cost
 
$
1

 
$
1

 
$
1

 
$
1

Interest cost
 
176

 
169

 
8

 
9

Expected return on assets
 
(204
)
 
(226
)
 
(4
)
 
(6
)
Amortization of:
 
 
 
 
 
 
 
 
Prior service cost (benefit)
 
7

 
7

 
(59
)
 
(59
)
Unrecognized net loss (gain)
 
38

 
36

 
(8
)
 
(5
)
Net periodic benefit cost (income)
 
$
18

 
$
(13
)
 
$
(62
)
 
$
(60
)
Effective November 1, 2012, substantially all of our defined benefit pension plans were frozen.
The components of net periodic benefit income other than the service cost component are included in nonoperating other income, net in the condensed consolidated statements of operations.
During the first three months of 2019, we made contributions of $364 million to our defined benefit pension plans.
10. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss (AOCI) are as follows (in millions):
 
Pension, Retiree
Medical and
Other
Postretirement
Benefits
 
Unrealized Gain (Loss) on Investments
 
Income Tax
Benefit
(Provision) 
(1)
 
Total
Balance at December 31, 2018
$
(4,673
)
 
$
(5
)
 
$
(1,218
)

$
(5,896
)
Other comprehensive income (loss) before reclassifications

 
4

 
(1
)
 
3

Amounts reclassified from AOCI
(22
)
 

 
6

(2)
(16
)
Net current-period other comprehensive income (loss)
(22
)
 
4

 
5

 
(13
)
Balance at March 31, 2019
$
(4,695
)
 
$
(1
)
 
$
(1,213
)
 
$
(5,909
)
 
     
(1) 
Relates principally to pension, retiree medical and other postretirement benefits obligations that will not be recognized in net income until the obligations are fully extinguished.
(2) 
Relates to pension, retiree medical and other postretirement benefits obligations and is recognized within the income tax provision on the condensed consolidated statement of operations.
Reclassifications out of AOCI are as follows (in millions):
 
 
Amounts reclassified from AOCI
 
Affected line items on the
condensed consolidated
statements of operations
AOCI Components
 
Three Months Ended March 31,
 
2019
 
2018
 
Amortization of pension, retiree medical and other postretirement benefits:
 
 
 
 
 
 
Prior service benefit
 
$
(40
)
 
$
(40
)
 
Nonoperating other income, net
Actuarial loss
 
24

 
24

 
Nonoperating other income, net
Total reclassifications for the period, net of tax
 
$
(16
)
 
$
(16
)
 
 

16


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)


11. Regional Expenses
Expenses associated with American Eagle operations are classified as regional expenses on the condensed consolidated statements of operations. Regional expenses consist of the following (in millions):
 
Three Months Ended March 31,
 
2019
 
2018
Aircraft fuel and related taxes
$
423

 
$
398

Salaries, wages and benefits
409

 
383

Capacity purchases from third-party regional carriers (1)
340

 
354

Maintenance, materials and repairs
93

 
80

Other rent and landing fees
167

 
147

Aircraft rent
7

 
9

Selling expenses
92

 
85

Depreciation and amortization
79

 
82

Other
153

 
160

Total regional expenses
$
1,763

 
$
1,698

 
     
(1) 
During the three months ended March 31, 2019 and 2018, we recognized $143 million and $138 million, respectively, of expense under our capacity purchase agreement with Republic Airline Inc. (Republic). We hold a 25% equity interest in Republic Airways Holdings Inc., the parent company of Republic.
12. Legal Proceedings
Chapter 11 Cases. On November 29, 2011, AMR Corporation (AMR), American, and certain of AMR’s other direct and indirect domestic subsidiaries (the Debtors) filed voluntary petitions for relief under Chapter 11 of the United States 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 approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan). On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan and completed the acquisition of US Airways Group, Inc. by AMR (the Merger).
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 claims. The shares of AAG common stock issued to the Disputed Claims Reserve were originally issued on December 13, 2013 and have at all times since been included in the number of shares issued and outstanding as reported from time to time in our quarterly and annual reports, including for purposes of calculating earnings per common share. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve. However, we are not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution in the Disputed Claims Reserve 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 us but rather will be distributed to former AMR stockholders and former convertible noteholders treated as stockholders under the Plan. On February 12, 2019, in accordance with the approval granted by the Bankruptcy Court on December 6, 2018, an aggregate of approximately 17.3 million shares of AAG common stock were distributed from the Disputed Claims Reserve to former AMR shareholders and convertible noteholders. After giving effect to this distribution, the Disputed Claims Reserve holds approximately 7 million shares of AAG common stock.
Private Party Antitrust Action Related to Passenger Capacity. We, 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 approximately 100 putative class action lawsuits alleging unlawful agreements with respect to air passenger capacity. The U.S. lawsuits have been consolidated in the Federal District Court for the District of Columbia (the DC Court). On June 15, 2018, we reached a preliminary settlement agreement with the plaintiffs in the amount of $45 million that, once approved, will resolve all class claims in the U.S. lawsuits. That settlement received preliminary approval from the DC Court on June 18, 2018.

17


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)


Private Party Antitrust Action Related to the Merger. On August 6, 2013, a lawsuit captioned Carolyn Fjord, et al., v. AMR Corporation, et al., was filed in the United States Bankruptcy Court for the Southern District of New York. The complaint named as defendants US Airways Group, Inc., US Airways, Inc., AMR and American, alleged that the effect of the Merger may be to create a monopoly in violation of Section 7 of the Clayton Antitrust Act, and sought injunctive relief and/or divestiture. On November 27, 2013, the Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger. On August 29, 2018, the Court denied in part defendants' motion for summary judgment, and fully denied plaintiffs' cross-motion for summary judgment. The parties' evidentiary cases were presented before the Bankruptcy Court in a bench trial in March 2019. The parties submitted proposed findings of fact and conclusions of law on April 15, 2019 and closing arguments are scheduled to be heard on April 26, 2019. We believe this lawsuit is without merit and intend to vigorously defend against the allegations.
DOJ Investigation Related to the United States Postal Service. In April 2015, the Department of Justice (DOJ) informed us of an inquiry regarding American’s 2009 and 2011 contracts with the United States Postal Service for the international transportation of mail by air. In October 2015, we received a Civil Investigative Demand from the DOJ seeking certain information relating to these contracts and the DOJ has also sought information concerning certain of the airlines that transport mail on a codeshare basis. The DOJ has indicated it is investigating potential violations of the False Claims Act or other statutes. We are cooperating fully with the DOJ with regard to its investigation.
General. In addition to the specifically identified legal proceedings, we and our 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 our control. Therefore, although we will vigorously defend ourselves in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain but could be material. See Part II, Item 1A. Risk Factors – “We may be a party to litigation in the normal course of business or otherwise, which could affect our financial position and liquidity” for additional discussion.
13. Subsequent Events
Dividend Declaration
In April 2019, we announced that our Board of Directors declared a $0.10 per share dividend for stockholders of record as of May 8, 2019, and payable on May 22, 2019. Any future dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors. We are not obligated to continue a dividend for any fixed period, and the payment of dividends may be suspended or discontinued at any time at our discretion and without prior notice.

18



ITEM 1B. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Operating revenues:
 
 
 
Passenger
$
9,658

 
$
9,480

Cargo
218

 
227

Other
705

 
691

Total operating revenues
10,581

 
10,398

Operating expenses:
 
 
 
Aircraft fuel and related taxes
1,726

 
1,763

Salaries, wages and benefits
3,089

 
3,014

Regional expenses
1,791

 
1,682

Maintenance, materials and repairs
561

 
469

Other rent and landing fees
503

 
467

Aircraft rent
327

 
309

Selling expenses
370

 
356

Depreciation and amortization
480

 
440

Special items, net
138

 
225

Other
1,251

 
1,261

Total operating expenses
10,236

 
9,986

Operating income
345

 
412

Nonoperating income (expense):
 
 
 
Interest income
127

 
73

Interest expense, net
(277
)
 
(250
)
Other income, net
109

 
79

Total nonoperating expense, net
(41
)
 
(98
)
Income before income taxes
304

 
314

Income tax provision
74

 
105

Net income
$
230

 
$
209

See accompanying notes to condensed consolidated financial statements.


19



AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Net income
$
230

 
$
209

Other comprehensive income (loss), net of tax:
 
 
 
Pension, retiree medical and other postretirement benefits
(16
)
 
(16
)
Investments
3

 
(2
)
Total other comprehensive loss, net of tax
(13
)
 
(18
)
Total comprehensive income
$
217

 
$
191

See accompanying notes to condensed consolidated financial statements.


20



AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except shares and par value)
 
March 31, 2019
 
December 31, 2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets
 
 
 
Cash
$
328

 
$
265

Short-term investments
4,010

 
4,482

Restricted cash and short-term investments
156

 
154

Accounts receivable, net
1,953

 
1,755

Receivables from related parties, net
11,422

 
10,666

Aircraft fuel, spare parts and supplies, net
1,584

 
1,442

Prepaid expenses and other
601

 
493

Total current assets
20,054

 
19,257

Operating property and equipment
 
 
 
Flight equipment
41,678

 
41,180

Ground property and equipment
8,612

 
8,466

Equipment purchase deposits
1,211

 
1,277

Total property and equipment, at cost
51,501

 
50,923

Less accumulated depreciation and amortization
(17,418
)
 
(17,123
)
Total property and equipment, net
34,083

 
33,800

Operating lease right-of-use assets
9,070

 
9,094

Other assets
 
 
 
Goodwill
4,091

 
4,091

Intangibles, net of accumulated amortization of $673 and $663, respectively
2,115

 
2,137

Deferred tax asset
1,100

 
1,280

Other assets
1,284

 
1,219

Total other assets
8,590

 
8,727

Total assets
$
71,797

 
$
70,878

LIABILITIES AND STOCKHOLDER’S EQUITY
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt and finance leases
$
2,122

 
$
2,547

Accounts payable
2,070

 
1,707

Accrued salaries and wages
1,165

 
1,363

Air traffic liability
5,930

 
4,339

Loyalty program liability
3,354

 
3,267

Operating lease liabilities
1,615

 
1,639

Other accrued liabilities
2,119

 
2,259

Total current liabilities
18,375

 
17,121

Noncurrent liabilities
 
 
 
Long-term debt and finance leases, net of current maturities
20,631

 
20,650

Pension and postretirement benefits
6,475

 
6,863

Loyalty program liability
5,214

 
5,272

Operating lease liabilities
7,743

 
7,857

Other liabilities
1,347

 
1,345

Total noncurrent liabilities
41,410

 
41,987

Commitments and contingencies

 

Stockholder’s equity
 
 
 
Common stock, $1.00 par value; 1,000 shares authorized, issued and outstanding

 

Additional paid-in capital
16,827

 
16,802

Accumulated other comprehensive loss
(6,005
)
 
(5,992
)
Retained earnings
1,190

 
960

Total stockholder’s equity
12,012

 
11,770

Total liabilities and stockholder’s equity
$
71,797

 
$
70,878

See accompanying notes to condensed consolidated financial statements.

21



AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Net cash provided by operating activities
$
956

 
$
1,263

Cash flows from investing activities:
 
 
 
Capital expenditures and aircraft purchase deposits
(1,263
)
 
(762
)
Proceeds from sale of property and equipment and sale-leaseback transactions
359

 
19

Purchases of short-term investments
(570
)
 
(1,244
)
Sales of short-term investments
1,051

 
1,029

Decrease (increase) in restricted short-term investments
(1
)
 
24

Other investing activities
(14
)
 

Net cash used in investing activities
(438
)
 
(934
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
400

 
236

Payments on long-term debt and finance leases
(849
)
 
(568
)
Deferred financing costs
(6
)
 
(1
)
Net cash used in financing activities
(455
)
 
(333
)
Net increase (decrease) in cash and restricted cash
63

 
(4
)
Cash and restricted cash at beginning of period
276

 
390

Cash and restricted cash at end of period (1)
$
339

 
$
386

 
 
 
 
Non-cash transactions:
 
 
 
Right-of-use assets obtained in exchange for lease liabilities:
 
 
 
Operating leases
$
332

 
$
36

Finance leases
2

 

Supplemental information:
 
 
 
Interest paid, net
256

 
246

Income taxes paid
3

 
3

 
   
(1) The following table provides a reconciliation of cash and restricted cash to amounts reported within the condensed consolidated balance sheets:
Cash
$
328

 
$
283

Restricted cash included in restricted cash and short-term investments
11

 
103

Total cash and restricted cash
$
339

 
$
386

See accompanying notes to condensed consolidated financial statements.


22



AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(In millions)(Unaudited)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Total
Balance at December 31, 2018
$

 
$
16,802

 
$
(5,992
)
 
$
960

 
$
11,770

Net income

 

 

 
230

 
230

Other comprehensive loss, net

 

 
(13
)
 

 
(13
)
Share-based compensation expense

 
25

 

 

 
25

Balance at March 31, 2019
$

 
$
16,827

 
$
(6,005
)
 
$
1,190

 
$
12,012


 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
(Deficit)
 
Total
Balance at December 31, 2017
$

 
$
16,716

 
$
(5,873
)
 
$
(955
)
 
$
9,888

Net income

 

 

 
209

 
209

Other comprehensive loss, net

 

 
(18
)
 

 
(18
)
Share-based compensation expense

 
24

 

 

 
24

Impact of adoption of Accounting Standards Update (ASU) 2016-01 related to financial instruments

 

 

 
60

 
60

Impact of adoption of ASU 2016-02 related to leases

 

 

 
197

 
197

Balance at March 31, 2018
$

 
$
16,740

 
$
(5,891
)
 
$
(489
)
 
$
10,360

See accompanying notes to condensed consolidated financial statements.

23



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)
1. Basis of Presentation and Recent Accounting Pronouncements
(a) 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 American’s Annual Report on Form 10-K for the year ended December 31, 2018. American is the principal 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 goodwill, impairment of long-lived and intangible assets, the loyalty program, as well as pension and retiree medical and other postretirement benefits.
In the fourth quarter of 2018, American adopted ASU 2016-02: Leases (Topic 842) (the New Lease Standard) as of January 1, 2018. In accordance with the New Lease Standard, 2018 periods have been recast to reflect the effects of this adoption. As a result of the adoption of the New Lease Standard, American's first quarter of 2018 net income decreased by $27 million.
(b) Recent Accounting Pronouncements
ASU 2018-02: Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
This ASU provides the option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings due to the U.S. federal corporate income tax rate change as a result of H.R. 1, the 2017 Tax Cuts and Jobs Act (the 2017 Tax Act). The amount of the reclassification is the difference between the amount initially charged or credited directly to other comprehensive income at the previous U.S. federal corporate income tax rate that remains in accumulated other comprehensive income and the amount that would have been charged or credited directly to other comprehensive income using the newly enacted U.S. federal corporate income tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations. This standard is effective for interim and annual reporting periods beginning after December 15, 2018. In the first quarter of 2019, American adopted this standard retrospectively as of December 22, 2017, the date the 2017 Tax Act was enacted, which resulted in the recast of prior reporting periods. As a result of the adoption, American reclassified $622 million of stranded tax effects principally related to its pension plans from accumulated other comprehensive loss to retained earnings.

24


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)


2. Special Items, Net
Special items, net in the condensed consolidated statements of operations consisted of the following (in millions):
 
Three Months Ended March 31,
 
2019
 
2018
Fleet restructuring expenses (1)
$
83

 
$
112

Merger integration expenses (2)
37

 
59

Litigation settlement

 
40

Labor contract expenses

 
13

Other operating charges, net
18

 
1

Mainline operating special items, net
138

 
225

 
 
 
 
Mark-to-market adjustments on equity investments, net (3)
(76
)
 

Other nonoperating charges, net
7

 

Nonoperating special items, net
(69
)
 

 
 
 
 
Income tax special items, net (4)

 
30

 
     
(1) 
Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment grounded or expected to be grounded earlier than planned.
(2) 
Merger integration expenses included costs associated with integration projects, principally American's technical operations, flight attendant, human resources and payroll systems.
(3) 
Mark-to-market adjustments on equity investments relate to net unrealized gains primarily associated with American's equity investment in China Southern Airlines Company Limited (China Southern Airlines).
(4) 
Income tax special items for the three months ended March 31, 2018 included a $30 million charge to income tax expense to establish a required valuation allowance related to American's estimated refund for Alternative Minimum Tax (AMT) credits.

25


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)


3. Revenue Recognition
Revenue
The following are the significant categories comprising American's reported operating revenues (in millions):
 
Three Months Ended March 31,
 
2019
 
2018
Passenger revenue:


 


Passenger travel
$
8,772

 
$
8,630

Loyalty revenue - travel (1)
886

 
850

Total passenger revenue
9,658

 
9,480

Cargo
218

 
227

Other:


 


Loyalty revenue - marketing services
578

 
570

Other revenue
127

 
121

Total other revenue
705

 
691

Total operating revenues
$
10,581

 
$
10,398

 
    
(1) 
Loyalty revenue included in passenger revenue is principally comprised of mileage credit redemptions earned through travel and mileage credits sold to co-branded credit card and other partners. See "Loyalty Revenue" below for further discussion on these mileage credits.
The following is American's total passenger revenue by geographic region (in millions):
 
Three Months Ended March 31,
 
2019
 
2018
Domestic
$
7,226

 
$
6,963

Latin America
1,371

 
1,445

Atlantic
673

 
669

Pacific
388

 
403

Total passenger revenue
$
9,658

 
$
9,480

American attributes passenger revenue by geographic region based upon the origin and destination of each flight segment.
Contract Balances
American's significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and other non-air travel awards, reported as loyalty program liability on the condensed consolidated balance sheets and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on the condensed consolidated balance sheets.
 
March 31, 2019
 
December 31, 2018
 
(In millions)
Loyalty program liability
$
8,568

 
$
8,539

Air traffic liability
5,930

 
4,339

Total
$
14,498

 
$
12,878


26


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)


The balance of the loyalty program liability fluctuates based on seasonal patterns, which impact the volume of mileage credits issued through travel or sold to co-branded credit card and other partners (deferral of revenue) and mileage credits redeemed (recognition of revenue). Changes in loyalty program liability are as follows (in millions):
Balance at December 31, 2018
$
8,539

Deferral of revenue
963

Recognition of revenue (1)
(934
)
Balance at March 31, 2019 (2)
$
8,568

 
(1) 
Principally relates to revenue recognized from the redemption of mileage credits for both air and non-air travel awards. Mileage credits are combined in one homogenous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period, as well as miles that were issued during the period.
(2) 
Mileage credits can be redeemed at any time and do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months. As of March 31, 2019, American's current loyalty program liability was $3.4 billion and represents American's current estimate of revenue expected to be recognized in the next twelve months based on historical trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter.
The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel. The balance in American's air traffic liability also fluctuates with seasonal travel patterns. The contract duration of passenger tickets is one year. Accordingly, any revenue associated with tickets sold for future travel will be recognized within twelve months. For the three months ended March 31, 2019, $2.6 billion of revenue was recognized in passenger revenue that was included in American's air traffic liability at December 31, 2018.
4. Debt
Long-term debt included in the condensed consolidated balance sheets consisted of (in millions):
 
March 31, 2019
 
December 31, 2018
Secured
 
 
 
2013 Credit Facilities, variable interest rate of 4.24%, installments through 2025
$
1,825

 
$
1,825

2014 Credit Facilities, variable interest rate of 4.49%, installments through 2021
1,215

 
1,215

April 2016 Credit Facilities, variable interest rate of 4.50%, installments through 2023
980

 
980

December 2016 Credit Facilities, variable interest rate of 4.48%, installments through 2023
1,225

 
1,225

Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.00% to 8.39%, averaging 4.17%, maturing from 2019 to 2029
11,059

 
11,648

Equipment loans and other notes payable, fixed and variable interest rates ranging from 2.34% to 7.89%, averaging 4.27%, maturing from 2019 to 2031
5,217

 
5,060

Special facility revenue bonds, fixed interest rates of 5.00%, maturing from 2019 to 2031
769

 
769

Total long-term debt
22,290

 
22,722

Less: Total unamortized debt discount, premium and issuance costs
215

 
219

Less: Current maturities
2,038

 
2,466

Long-term debt, net of current maturities
$
20,037

 
$
20,037


27


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)


The table below shows the maximum availability under revolving credit facilities, all of which were undrawn, as of March 31, 2019 (in millions):
2013 Revolving Facility
$
1,000

2014 Revolving Facility
1,543

April 2016 Revolving Facility
300

Total
$
2,843

The December 2016 Credit Facilities provide for a revolving credit facility that may be established in the future.
2019 Aircraft Financing Activities
Equipment Notes Issued in 2019
In the first three months of 2019, American entered into agreements under which it borrowed $400 million in connection with the financing of certain aircraft. Debt incurred under these agreements matures in 2031 and bears interest at variable rates (comprised of LIBOR plus an applicable margin) averaging 4.07% at March 31, 2019.
5. Income Taxes
At December 31, 2018, American had approximately $10.6 billion of federal net operating losses (NOLs) carried over from prior taxable years (NOL Carryforwards) to reduce future federal taxable income, substantially all of which American expects to be available for use in 2019. American is a member of AAG’s consolidated federal and certain state income tax returns. The amount of federal NOL Carryforwards available in those returns is $10.2 billion, substantially all of which is expected to be available for use in 2019. The federal NOL Carryforwards will expire beginning in 2022 if unused. American also had approximately $3.1 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2018, which will expire in years 2019 through 2038 if unused.
At December 31, 2018, American had an AMT credit carryforward of approximately $452 million available for federal income tax purposes, which is expected to be fully refundable over the next several years as a result of the repeal of corporate AMT.
During the three months ended March 31, 2019, American recorded an income tax provision of $74 million, which was substantially non-cash as American utilized its NOLs as described above.
6. Fair Value Measurements
Assets Measured at Fair Value on a Recurring Basis
American utilizes the market approach to measure fair value for its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. American’s 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 three months ended March 31, 2019.

28


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)


Assets measured at fair value on a recurring basis are summarized below (in millions):
 
Fair Value Measurements as of March 31, 2019
 
Total
 
Level 1
 
Level 2
 
Level 3
Short-term investments (1) (2):
 
 
 
 
 
 
 
Money market funds
$
11

 
$
11

 
$

 
$

Corporate obligations
1,310

 

 
1,310

 

Bank notes/certificates of deposit/time deposits
2,464

 

 
2,464

 

Repurchase agreements
225

 

 
225

 

 
4,010

 
11

 
3,999

 

Restricted cash and short-term investments (1)
156

 
12

 
144

 

Long-term investments (3)
265

 
265

 

 

Total
$
4,431

 
$
288

 
$
4,143

 
$

 
     
(1) 
Unrealized gains or losses on 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. American’s short-term investments mature in one year or less except for $1.2 billion of bank notes/certificates of deposit/time deposits and $188 million of corporate obligations.
(3) 
Long-term investments primarily include American's equity investment in China Southern Airlines, in which American presently owns a 2.2% equity interest, and are classified in other assets on the condensed consolidated balance sheets.
Fair Value of Debt
The fair value of American’s long-term debt was estimated using quoted market prices or discounted cash flow analyses, based on American’s current estimated incremental borrowing rates for similar types of borrowing arrangements. If American’s 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 American’s long-term debt, including current maturities, were as follows (in millions): 
 
March 31, 2019
 
December 31, 2018
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Long-term debt, including current maturities
$
22,075

 
$
22,347

 
$
22,503

 
$
22,497

7. Employee Benefit Plans
The following table provides the components of net periodic benefit cost (income) (in millions):
 
 
Pension Benefits
 
Retiree Medical and Other
Postretirement Benefits
Three Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
Service cost
 
$
1

 
$
1

 
$
1

 
$
1

Interest cost
 
175

 
168

 
8

 
9

Expected return on assets
 
(203
)
 
(225
)
 
(4
)
 
(6
)
Amortization of:
 
 
 
 
 
 
 
 
Prior service cost (benefit)
 
7

 
7

 
(59
)
 
(59
)
Unrecognized net loss (gain)
 
38

 
36

 
(8
)
 
(5
)
Net periodic benefit cost (income)
 
$
18

 
$
(13
)
 
$
(62
)
 
$
(60
)

29


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)


Effective November 1, 2012, substantially all of American’s defined benefit pension plans were frozen.
The components of net periodic benefit income other than the service cost component are included in nonoperating other income, net in the condensed consolidated statements of operations.
During the first three months of 2019, American made contributions of $364 million to its defined benefit pension plans.
8. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss (AOCI) are as follows (in millions):
 
Pension, Retiree
Medical and
Other
Postretirement
Benefits
 
Unrealized Gain (Loss) on Investments
 
Income Tax
Benefit
(Provision) 
(1)
 
Total
Balance at December 31, 2018
$
(4,658
)
 
$
(5
)
 
$
(1,329
)