10-Q 1 aa-10qx2013930.htm 10-Q AA- 10Q- 2013.9.30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2013
 
¨
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 1-2691
 
 
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
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (817) 963-1234
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
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.    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.
¨  Large Accelerated Filer    ¨  Accelerated Filer    ý  Non-accelerated Filer
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).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ¨  Yes    ý  No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $1 par value – 1,000 shares as of October 10, 2013



INDEX
AMERICAN AIRLINES, INC.
DEBTOR AND DEBTOR IN POSSESSION
 



Forward-Looking Information
Statements in this report contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events. When used in this document and in documents incorporated herein by reference, the words “expects,” “estimates,” “plans,” “anticipates,” “indicates,” “believes,” “projects,” “forecast,” “guidance,” “outlook,” “if current trends continue,” “optimistic,” “may,” “will,” “could,” “should,” "would," "continue," “seeks,” "intends," “targets” and similar expressions are intended to identify forward-looking statements. Similarly, statements that describe the Company's objectives, plans or goals, or actions the Company may take in the future, are forward-looking statements. Forward-looking statements include, without limitation, the Company's expectations concerning its anticipated Merger with US Airways Group, Inc., the possible impact of the lawsuit filed by the U.S. Department of Justice seeking to enjoin the Merger, and the challenges and costs of such Merger (including integrating operations and achieving anticipated synergies), the Chapter 11 Cases and the Company's business plan; the Company's operations and financial conditions, including changes in capacity, revenues, and costs; future financing plans and needs; the amounts of its unencumbered assets and other sources of liquidity; fleet plans; overall economic and industry conditions; plans and objectives for future operations; regulatory approvals and actions; and the impact on the Company of its results of operations in recent years and the sufficiency of its financial resources to absorb that impact. Guidance given in this report regarding capacity, fuel consumption, fuel prices, fuel hedging and unit costs constitutes forward-looking statements. Other forward-looking statements include statements which do not relate solely to historical facts, such as, without limitation, statements which discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
Forward-looking statements are subject to a number of factors that could cause the Company's actual results to differ materially from the Company's expectations. The following factors, in addition to other possible factors not listed, could cause the Company's actual results and financial position, and the timing of certain events, to differ materially from those expressed in forward-looking statements: risks related to the Merger, including fulfillment of conditions, receipt of consents and approvals, and the inability to realize the contemplated benefits of the Merger; the possible adverse consequences of the lawsuit by the U.S. Department of Justice seeking to enjoin the Merger; risks arising from the Chapter 11 Cases, including reorganization risks, liquidity risks, and common stock risks; the materially weakened financial condition of the Company, resulting from its significant losses in recent years; the potential impact on the demand for air travel resulting from downturns in economic conditions; the Company's ability to secure financing for all of its scheduled aircraft deliveries; the potential requirement for the Company to maintain reserves under its credit card processing agreements, which could materially adversely impact the Company's liquidity; the ability of the Company to generate additional revenues and reduce its costs; continued high and volatile fuel prices and further increases in the price of fuel, and the availability of fuel; reliance on third-party distribution channels for distribution of a significant portion of the Company's airline tickets; the Company's substantial indebtedness and other obligations; the ability of the Company to satisfy certain covenants and conditions in certain of its financing and other agreements; changes in economic and other conditions beyond the Company's control, and the volatile results of the Company's operations; the fiercely and increasingly competitive business environment faced by the Company; industry consolidation and alliance changes; low fare levels by historical standards and the Company's reduced pricing power; changes in the Company's corporate or business strategy; delays in scheduled aircraft deliveries or failure of new aircraft to perform as expected; dependence on a limited number of suppliers for aircraft, aircraft engines and parts; extensive government regulation of the Company's business; increasingly stringent environmental regulations; conflicts overseas or terrorist attacks; uncertainties with respect to the Company's international operations; outbreaks of a disease (such as SARS, avian flu or the H1N1 virus) that affects travel behavior; uncertainties with respect to the Company's relationships with unionized and other employee work groups; higher than normal numbers of pilot retirements and a potential shortage of pilots; increased insurance costs and potential reductions of available insurance coverage; the Company's ability to retain key management personnel; potential failures or disruptions of the Company's computer, communications or other technology systems; losses and adverse publicity resulting from any accident involving the Company's aircraft; interruptions or disruptions in service at one or more of the Company's primary market airports; the heavy taxation of the airline industry; inability to realize the full value of intangible assets or long-lived assets, resulting in material impairment charges; and interruptions or disruptions in relationships with third-party regional airlines or other third-party service providers. The Risk Factors contained in the Company's Securities and Exchange Commission filings, including the factors discussed in Part II, Item 1A, "Risk Factors"could cause the Company's actual results to differ materially from historical results and from those expressed in forward-looking statements.

1


PART I: FINANCIAL INFORMATION
Item 1. Financial Statements

AMERICAN AIRLINES, INC.
DEBTOR AND DEBTOR IN POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions)
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013

2012
 
2013
 
2012
Revenues
 
 
 
 
 
 
 
Passenger
$
5,253

 
$
4,909

 
$
14,755

 
$
14,303

Regional Affiliates
766

 
748

 
2,197

 
2,208

Cargo
163

 
156

 
485

 
499

Other revenues
634

 
609

 
1,901

 
1,890

Total operating revenues
6,816

 
6,422

 
19,338

 
18,900

Expenses
 
 
 
 
 
 
 
Aircraft fuel
2,220

 
2,180

 
6,558

 
6,554

Wages, salaries and benefits
1,383

 
1,620

 
3,982

 
4,854

Regional payments to AMR Eagle
261

 
288

 
792

 
861

Other rentals and landing fees
333

 
324

 
1,013

 
976

Maintenance, materials and repairs
285

 
283

 
913

 
853

Commissions, booking fees and credit card expense
280

 
277

 
813

 
806

Depreciation and amortization
242

 
252

 
727

 
765

Aircraft rentals
186

 
137

 
529

 
410

Food service
154

 
139

 
442

 
393

Special charges and merger related
15

 
211

 
55

 
328

Other operating expenses
774

 
684

 
2,306

 
2,053

Total operating expenses
6,133

 
6,395

 
18,130

 
18,853

Operating Income
683

 
27

 
1,208

 
47

Other Income (Expense)
 
 
 
 
 
 
 
Interest income
5

 
7

 
14

 
19

Interest expense (contractual interest expense equals $(195) and $(534) for the three and nine months ended September 30, 2013, respectively, and $(166) and $(519) for the three and nine months ended September 30, 2012, respectively)
(188
)
 
(161
)
 
(514
)
 
(503
)
Interest capitalized
10

 
13

 
35

 
36

Related party interest, net
(3
)
 
(3
)
 
(8
)
 
(10
)
Miscellaneous, net
(66
)
 
(12
)
 
(66
)
 
(26
)
 
(242
)
 
(156
)
 
(539
)
 
(484
)
Income (Loss) Before Reorganization Items, Net
441

 
(129
)
 
669

 
(437
)
Reorganization Items, Net
(151
)
 
(128
)
 
(434
)
 
(1,760
)
Income (Loss) Before Income Taxes
290

 
(257
)
 
235

 
(2,197
)
Income tax (benefit)

 

 
(30
)
 

Net Earnings (Loss)
$
290

 
$
(257
)
 
$
265

 
$
(2,197
)
The accompanying notes are an integral part of these financial statements.

2


AMERICAN AIRLINES, INC.
DEBTOR AND DEBTOR IN POSSESSION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (In millions)
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Net Earnings (Loss)
$
290

 
$
(257
)
 
$
265

 
$
(2,197
)
Other Comprehensive Income (Loss), Before Tax:
 
 
 
 
 
 
 
Defined benefit pension plans and retiree medical:
 
 
 
 
 
 
 
Amortization of actuarial (gain) loss and prior service cost
(33
)
 
56

 
(99
)
 
169

Current year change

 

 

 

Benefit plan modifications

 
1,673

 

 
1,673

Derivative financial instruments:
 
 
 
 
 
 
 
Change in fair value
22

 
86

 
(34
)
 
29

Reclassification into earnings
11

 
12

 
23

 
(13
)
Unrealized gain (loss) on investments:
 
 
 
 
 
 
 
Net change in value
(3
)
 
2

 
(3
)
 
5

Other Comprehensive Income (Loss) Before Tax
(3
)
 
1,829

 
(113
)
 
1,863

Income tax expense on other comprehensive income

 

 

 

Comprehensive Income (Loss)
$
287

 
$
1,572

 
$
152

 
$
(334
)
The accompanying notes are an integral part of these financial statements.

3


AMERICAN AIRLINES, INC.
DEBTOR AND DEBTOR IN POSSESSION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
 
 
 
 
 
September 30,
2013
 
December 31,
2012
Assets
 
 
 
Current Assets
 
 
 
Cash
$
712

 
$
474

Short-term investments
6,043

 
3,408

Restricted cash and short-term investments
935

 
850

Receivables, net
1,328

 
1,105

Inventories, net
655

 
550

Fuel derivative contracts
58

 
65

Other current assets
469

 
559

Total current assets
10,200

 
7,011

Equipment and Property
 
 
 
Flight equipment, net
10,329

 
10,185

Other equipment and property, net
2,052

 
2,081

Purchase deposits for flight equipment
709

 
710

 
13,090

 
12,976

Equipment and Property Under Capital Leases
 
 
 
Flight equipment, net
191

 
222

Other equipment and property, net
55

 
60

 
246

 
282

International slots and route authorities
710

 
708

Domestic slots and airport operating and gate lease rights, less accumulated amortization, net
143

 
161

Other assets
2,176

 
2,126

 
$
26,565

 
$
23,264


4


AMERICAN AIRLINES, INC.
DEBTOR AND DEBTOR IN POSSESSION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
 
 
 
 
 
September 30,
2013
 
December 31,
2012
Liabilities and Stockholder's Equity (Deficit)
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
1,277

 
$
1,212

Accrued liabilities
2,040

 
2,010

Air traffic liability
5,293

 
4,524

Payable to affiliates, net
2,796

 
2,753

Current maturities of long-term debt
1,335

 
1,388

Current obligations under capital leases
24

 
31

Total current liabilities
12,765

 
11,918

Long-term debt, less current maturities
8,891

 
6,762

Obligations under capital leases, less current obligations
345

 
381

Pension and postretirement benefits
6,641

 
6,780

Other liabilities, deferred gains and deferred credits
1,866

 
1,691

Liabilities Subject to Compromise
5,860

 
5,694

Stockholder's Equity (Deficit)
 
 
 
Common stock

 

Additional paid-in capital
4,476

 
4,469

Accumulated other comprehensive income (loss)
(3,201
)
 
(3,088
)
Accumulated deficit
(11,078
)
 
(11,343
)
 
(9,803
)
 
(9,962
)
 
$
26,565

 
$
23,264

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

5


AMERICAN AIRLINES, INC.
DEBTOR AND DEBTOR IN POSSESSION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
 
 
 
 
 
Nine Months Ended September 30,
 
2013
 
2012
Net Cash Provided by Operating Activities
$
1,758

 
$
1,464

Cash Flow from Investing Activities:
 
 
 
Capital expenditures, including aircraft lease deposits
(2,391
)
 
(1,145
)
Net decrease (increase) in short-term investments
(2,635
)
 

Net decrease (increase) in restricted cash and short-term investments
(85
)
 
(109
)
Proceeds from sale of equipment, property, and investments/subsidiaries
22

 
57

Net cash provided by (used in) investing activities
(5,089
)
 
(1,197
)
Cash Flow from Financing Activities:
 
 
 
Payments on long-term debt and capital lease obligations
(2,052
)
 
(990
)
Proceeds from:
 
 
 
Issuance of debt
4,082

 

Sale-leaseback transactions
1,496

 
853

Funds transferred to affiliates, net
43

 
94

Other

 

Net cash provided by (used in) financing activities
3,569

 
(43
)
Net increase in cash
238

 
224

Cash at beginning of period
474

 
280

Cash at end of period
$
712

 
$
504

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

6


AMERICAN AIRLINES, INC,
DEBTOR AND DEBTOR IN POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1. Chapter 11 Reorganization
Overview
On November 29, 2011 (the Petition Date), AMR Corporation (AMR), its principal subsidiary, American Airlines, Inc. (American or the Company) and certain of AMR’s 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). The Chapter 11 Cases are being jointly administered under the caption “In re AMR Corporation, et al., Case No. 11-15463-SHL.”
The Company and the other Debtors are operating as “debtors in possession” under the jurisdiction of the Bankruptcy Court and the applicable provisions of the Bankruptcy Code. In general, as debtors in possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. The Bankruptcy Code enables the Company to continue to operate its business without interruption, and the Bankruptcy Court has granted additional relief covering, among other things, obligations to (i) employees, (ii) taxing authorities, (iii) insurance providers, (iv) independent contractors for improvement projects, (v) foreign vendors, (vi) other airlines pursuant to certain interline agreements, and (vii) certain vendors deemed critical to the Debtors’ operations.
While operating as debtors in possession under Chapter 11 of the Bankruptcy Code, the Debtors may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or otherwise as permitted in the ordinary course of business. On April 15, 2013, the Company and other Debtors filed with the Bankruptcy Court a proposed Plan of Reorganization (as amended , the Plan) and related Disclosure Statement (herein so called). The Plan contains provisions for the treatment of equity interests in, and prepetition claims against, AMR and the other Debtors. The Plan also contemplates a business combination (referred to herein as the Merger) of AMR and US Airways Group, Inc. (US Airways Group). See below, "Filing of Plan of Reorganization, Disclosure Statement and Form S-4", and Note 12 to the Condensed Consolidated Financial Statements for further information. The Plan was accepted by the Debtors' stakeholders and by the requisite majorities of empowered stakeholders under the Bankruptcy Code. See below for further information on the Plan. The Plan and Disclosure Statement and the information contained therein are not incorporated in this Form 10-Q.
The Company’s Chapter 11 Cases followed an extended effort by the Company to restructure its business to strengthen its competitive and financial position. However, the Company’s substantial cost disadvantage compared to its larger competitors, all of which restructured their costs and debt through Chapter 11, became increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges.
Notwithstanding any indications of value that may be contained in the Plan, no assurance can be given as to the value that ultimately may be ascribed to the Debtors' various prepetition liabilities and other securities. The Company cannot predict what the ultimate value of any of its securities may be.
General Information
Notices to Creditors; Effect of Automatic Stay. The Debtors have notified all known current or potential creditors that the Chapter 11 Cases were filed. Subject to certain exceptions under the Bankruptcy Code, the filing of the Debtors’ Chapter 11 Cases automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date. Thus, for example, most creditor actions to obtain possession of property from the Debtors, or to create, perfect or enforce any lien against the property of the Debtors, or to collect on monies owed or otherwise exercise rights or remedies with respect to a prepetition claim, are enjoined unless and until the Bankruptcy Court lifts the automatic stay as to any such claim. Vendors are being paid for goods furnished and services provided after the Petition Date in the ordinary course of business.

Appointment of Creditors’ Committee. On December 5, 2011, the U.S. Trustee appointed the Official Committee of Unsecured
Creditors(Creditors' Committee) for the Chapter 11 Cases.
Retirement and Life Insurance Benefits. See Note 8 to the Condensed Consolidated Financial Statements for information regarding modifications to retirement and life insurance benefits.

7


Rejection of Executory Contracts. Under section 365 and other relevant sections of the Bankruptcy Code, the Debtors may assume, assume and assign, or reject certain executory contracts and unexpired leases, including, without limitation, agreements relating to aircraft and aircraft engines (collectively, Aircraft Property) and leases of real property, subject to the approval of the Bankruptcy Court and certain other conditions. As of September 30, 2013, the Bankruptcy Court had entered orders granting the Debtors' motions to assume 554, assume and assign one, terminate one, and reject 12 unexpired leases of non-residential real property and had entered various orders extending, by the Debtors' agreement with certain landlords, the date by which the Debtors must assume or reject an additional three unexpired leases of non-residential real property. With respect to certain agreements between American and the City of Chicago, American and the City of Chicago entered into a stipulated order, which provided for the assumption of such agreements as of the effective date of the Plan. The stipulated order also provides that if the effective date of the Plan has not occurred by January 31, 2014, the parties are free to extend such deadline with the approval of the Bankruptcy Court or to renegotiate the terms of the order assuming such agreements.
On April 3, 2013, the Bankruptcy Court entered an order approving a stipulation providing that, among other things, (i) the 1990 and 1994 series of special facility revenue bonds that financed certain improvements at John F. Kennedy International Airport (JFK) will be treated as general unsecured claims, (ii) the Debtors may continue to use any premises and improvements at JFK or LaGuardia Airport financed by the 1990 or 1994 series of special facility revenue bonds, (iii) the Debtors will assume the leases at JFK that currently relate to the 2002 and 2005 series of special facility revenue bonds, and (iv) the Debtors' use of premises at JFK will continue to be governed by those leases as well as any other leases that may apply (including leases with the Port Authority of New York and New Jersey). See "Reorganization Items, net" for further information.
In general, rejection of an executory contract or unexpired lease is treated as a prepetition breach of the executory contract or unexpired lease in question and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a prepetition general unsecured claim for damages caused by such deemed breach. Counterparties to such rejected contracts or leases have the right to file claims against the Debtors’ estate for such damages. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing defaults under such executory contract or unexpired lease.
Any description of an executory contract or unexpired lease elsewhere in these Notes or in the report to which these Notes are attached, including, where applicable, the Debtors’ express termination rights or a quantification of their obligations, must be read in conjunction with, and is qualified by, any rights the Debtors or counterparties have under section 365 of the Bankruptcy Code.
The Debtors expect that liabilities subject to compromise and resolution in the Chapter 11 Cases will arise in the future as a result of damage claims created by the Debtors’ rejection of various executory contracts and unexpired leases. Due to the uncertain nature of many of the potential rejection claims, the magnitude of such claims is not reasonably estimable at this time. Such claims may be material (see “Liabilities Subject to Compromise” below).
Special Protection Applicable to Leases and Secured Financing of Aircraft and Aircraft Equipment. Notwithstanding the general discussion above of the impact of the automatic stay, under section 1110 of the Bankruptcy Code, beginning 60 days after filing a petition under Chapter 11, certain secured parties, lessors and conditional sales vendors may have a right to take possession of certain qualifying Aircraft Property that is leased or subject to a security interest or conditional sale contract, unless the Debtors, subject to approval by the Bankruptcy Court, agree to perform under the applicable agreement, and cure any defaults as provided in section 1110 (other than defaults of a kind specified in section 365(b)(2) of the Bankruptcy Code). Taking such action does not preclude the Debtors from later rejecting the applicable lease or abandoning the Aircraft Property subject to the related security agreement, or from later seeking to renegotiate the terms of the related financing.
The Debtors may extend the 60-day period by agreement of the relevant financing party, with Bankruptcy Court approval. In the absence of an agreement or cure as described above or such an extension, the financing party may take possession of the Aircraft Property and enforce its contractual rights or remedies to sell, lease or otherwise retain or dispose of such equipment.
The 60-day period under section 1110 in the Chapter 11 Cases expired on January 27, 2012. In accordance with the Bankruptcy Court’s Order Authorizing the Debtors to (i) Enter into Agreements Under Section 1110(a) of the Bankruptcy Code, (ii) Enter into Stipulations to Extend the Time to Comply with Section 1110 of the Bankruptcy Code and (iii) File Redacted Section 1110(b) Stipulations, dated December 23, 2011, the Debtors have entered into agreements to extend the automatic stay or agreed to perform and cure defaults under financing agreements with respect to certain aircraft in their fleet and other Aircraft Property. The Debtors have entered into definitive documentation with respect to substantially all of the aircraft for which the Debtors expect to negotiate revised terms.
Magnitude of Potential Claims. On February 27, 2012, the Debtors filed with the Bankruptcy Court schedules and statements of financial affairs setting forth, among other things, the assets and liabilities of the Debtors, subject to the assumptions filed in connection therewith. All of the schedules are subject to further amendment or modification.

8


Bankruptcy Rule 3003(c)(3) requires the Bankruptcy Court to fix the time within which proofs of claim must be filed in a Chapter 11 case pursuant to section 501 of the Bankruptcy Code. This Bankruptcy Rule also provides that any creditor who asserts a claim against the Debtors that arose prior to the Petition Date and whose claim (i) is not listed on the Debtors' schedules or (ii) is listed on the schedules as disputed, contingent, or unliquidated, must file a proof of claim. On May 4, 2012, the Bankruptcy Court entered an order that established July 16, 2012 at 5:00 p.m. (Eastern Time) (the Bar Date) as the deadline to file proofs of claim against any Debtor. More information regarding the filing of proofs of claim can be obtained at www.amrcaseinfo.com. Information on this website is not incorporated into or otherwise made a part of this report.
As of October 10, 2013, approximately 13,500 claims totaling about $291 billion have been filed with the Bankruptcy Court against the Debtors. Of those claims, approximately 360 claims aggregating approximately $58 million were filed after the Bar Date. We expect new and amended claims to be filed in the future, including claims amended to assign values to claims originally filed with no designated value. We intend to dispute the claims filed after the Bar Date as not having been filed timely and in accordance with the Bankruptcy Code. We have identified, and we expect to continue to identify, many claims that we believe should be disallowed by the Bankruptcy Court because they are duplicative, are without merit, are overstated or for other reasons. As of October 10, 2013, the Bankruptcy Court has disallowed approximately $119 billion of claims and has not yet ruled on our other objections to claims, the disputed portions of which aggregate to an additional $663 million. We expect to continue to file objections in the future. Because the process of analyzing and objecting to claims is ongoing, the amount of disallowed claims may increase significantly in the future. The Debtors have recorded amounts for claims for which there was sufficient information to estimate the claim.
Differences between amounts scheduled by the Debtors and claims by creditors will be investigated and resolved in connection with the claims resolution process. In light of the expected number of creditors, the claims resolution process may take considerable time to complete. Accordingly, the ultimate number and amount of allowed claims is not presently known, nor can the ultimate recovery with respect to allowed claims be presently ascertained.
Collective Bargaining Agreements. Section 1113(c) of the Bankruptcy Code provides a process for the modification and/or rejection of collective bargaining agreements (CBAs). Through this process, American was able to achieve new CBAs with each of its unions (TWU, APFA and APA), covering nine unionized work groups.
In September 2012, the Bankruptcy Court authorized American to reject its pilot CBA, and thereafter American began implementing certain terms and conditions of employment for pilots. American and the APA continued to negotiate in good faith toward a new pilot agreement, and those negotiations resulted in a new pilot CBA that was approved by the Bankruptcy Court on December 19, 2012. A small group of American pilots is appealing the Bankruptcy Court's decisions granting American's request to reject the pilot CBA and approving the new pilot CBA, and those appeals are pending in the U.S. District Court for the Southern District of New York.
American Eagle Airlines, Inc. (AMR Eagle) also engaged in the Section 1113(c) process with its unions, and ultimately achieved new CBAs with its unions, including AFA, ALPA and all four TWU-represented work groups.
In addition, American's pilots, flight attendants, and ground employee unions and the US Airways, Inc. (US Airways) pilots union have agreed to new terms for CBAs, effective upon the closing of the proposed Merger with US Airways Group (see Note 12 to the Condensed Consolidated Financial Statements for further information regarding the Merger). Separately, US Airways entered into a new CBA with the Association of Flight Attendants-CWA (the AFA) that includes support for the Merger. American's unions representing pilots and flight attendants are working with their counterparts at US Airways to determine representation and single agreement protocols to be used to integrate the pilots and flight attendants workforces after the Merger. The TWU reached agreement with its counterpart at US Airways (the International Association of Machinists and Aerospace Workers (IAM)) to jointly represent three groups of ground employees (Mechanic and Related, Fleet Service and Stores) following the Merger (subject to certification by the National Mediation Board), and on a process for integrating these workgroups, and one other, following the Merger.
Filing of Plan of Reorganization, Disclosure Statement and Form S-4. On April 15, 2013, the Company and other Debtors initially filed with the Bankruptcy Court the Plan and Disclosure Statement, which contemplate that AMR will emerge from Chapter 11 and AMR and AMR Merger Sub, Inc. will engage in the Merger (as further described in Note 12 to the Condensed Consolidated Financial Statements). The Plan addresses various subjects with respect to the Debtors, including the resolution of pre-petition obligations as well as the capital structure and corporate governance after exit from the Chapter 11 Cases. The Plan further provides that, upon the effectiveness of the Plan and the Merger, which are anticipated to occur contemporaneously, all shares of existing AMR common stock and other equity interests in AMR will be canceled and any rights with respect thereto will cease to exist, subject to the right to receive distributions pursuant to the Plan.
Generally, for purposes of the Plan, all 20 Debtors will be “substantively consolidated” into three nodes, consisting of: (i) AMR Debtors, (ii) American Debtors, and (iii) Eagle Debtors. As among the AMR Debtors, the American Debtors, and the Eagle Debtors, the Plan will separately classify creditor claims. However, pursuant to the compromises incorporated into the Plan relating to

9


certain inter-creditor issues and the treatment of intercompany claims among the Debtors, general unsecured claims of similar rank and priority will be treated the same under the Plan regardless of the Debtor against which such claim was filed.
The Plan contains provisions related to the treatment of prepetition unsecured claims against the Debtors and equity interests in AMR as described in the Plan and Disclosure Statement and in Note 12 to the Condensed Consolidated Financial Statements under "Description of Plan of Reorganization."
On April 15, 2013, AMR filed a Form S-4 registration statement (the Form S-4 Registration Statement) with the SEC to register the shares of common stock of AMR, which following the Merger will be renamed American Airlines Group Inc. (herein, the AAG Common Stock), to be issued to stockholders of US Airways Group, Inc. (US Airways Group) as consideration in the Merger in exchange for their US Airways Group common stock. The SEC declared the Form S-4 Registration Statement, as amended, effective on June 10, 2013. The stockholders of US Airways Group voted to approve the Merger on July 12, 2013. The AAG Common Stock cannot be issued to US Airways Group stockholders until the Plan and Merger are consummated.
On June 7, 2013, the Bankruptcy Court entered the order approving the Disclosure Statement and authorized the Debtors to begin soliciting votes on the Plan from creditors and stockholders. On July 19, 2013, the Company and the other Debtors filed with the Bankruptcy Court the “Plan Supplement”, which contains certain documents that are part of the Plan. On August 1, 2013, the Plan was accepted by each class of creditors and AMR equity interest holders entitled to vote on the Plan.
A hearing was held on August 15, 2013, to consider confirmation of the Plan. The Bankruptcy Court deferred ruling on Plan confirmation and requested briefs from the Debtors and other interested parties regarding the impact of the lawsuit filed by the United States Department of Justice (DOJ) and certain states against AMR and US Airways Group in the United States District Court for the District of Columbia, Case 1:13-cv-01236 (the DOJ Action) (see Note 12 to the Consolidated Condensed Financial Statements) on confirmation standards and the appropriateness of ruling on confirmation before the DOJ Action (which seeks to enjoin the Merger) is resolved. On September 12, 2013, the Bankruptcy Court stated that it would enter an order (the Confirmation Order) confirming the Plan. A proposed Confirmation Order has been submitted to the Bankruptcy Court and it is anticipated that the Confirmation Order will be entered prior to the resolution of the DOJ Action. When the Confirmation Order is entered, the effective date of the Plan and implementation of the Plan will remain subject to certain conditions precedent, including satisfactory resolution of the DOJ Action. Although the Bankruptcy Court has stated it will enter the Confirmation Order, the ultimate resolution of the DOJ Action and its impact on the Company and the Merger are uncertain, and accordingly, it cannot be predicted at this time whether or not the Plan will become effective and the Merger will occur.
In the event that a settlement is reached in the DOJ Action, AMR would be required to seek the Bankruptcy Court's approval of such settlement, which may involve a determination of whether any additional notice or re-solicitation of previous acceptances or rejections of the Plan are necessary.
There can be no assurance that the Plan will be implemented successfully.
Merger Agreement. See Note 12 to the Condensed Consolidated Financial Statements for information regarding the Merger Agreement.
Availability and Utilization of Net Operating Losses. A discussion of the potential impact of the Plan on the availability and utilization of net operating losses (and alternative minimum tax credits) after the Debtors' emergence from Chapter 11 is contained in the Disclosure Statement. As described therein, the Debtors reasonably anticipate taking advantage of the special bankruptcy rule in section 382(l)(5) of the U.S. Internal Revenue Code, which generally applies to an ownership change in bankruptcy that involves the retention or receipt of at least half of the stock of the reorganized debtor by its shareholders and/or qualified creditors.
On April 11, 2013, the Bankruptcy Court issued a Revised Final Order Establishing Notification Procedures for Substantial Claimholders and Equity Security Holders and Approving Restrictions on Certain Transfers of Interests in the Debtors' Estates (the Revised Order), which restricts trading in AMR's common stock and establishes certain procedures and potential restrictions with respect to the transfer of claims (the Revised Procedures). The order is intended to prevent, or otherwise institute procedures and notification requirements with respect to, certain transfers of AMR common stock and unsecured claims against the Debtors that could impair the ability of the Debtors to use their net operating loss carryovers and certain other tax attributes on a reorganized basis.
In accordance with the Revised Procedures, an initial date was established by which holders of unsecured claims (or in certain cases, group of holders) that beneficially owned in excess of a threshold amount as of May 24, 2013 were required to file a Notice of Substantial Claim Ownership. The reporting deadline was May 31, 2013, and the threshold amount was $190 million of unsecured claims or such lesser amount as set forth in the proposed Disclosure Statement. The Disclosure Statement established in accordance with the Revised Procedures a second (final) date by which holders of unsecured claims (or in certain cases, group of holders) that beneficially owned in excess of a threshold amount as of July 1, 2013 were required to file a Notice of Substantial Claim

10


Ownership (regardless of whether such holder(s) filed a Notice as of the first reporting deadline). The final reporting deadline was July 8, 2013. The threshold amount was $190 million of unsecured claims or such lesser amount as set forth in the approved Disclosure Statement, namely such lesser amount which, when added to certain specified interests, including stock, in AMR or US Airways Group, would result in such holder holding the “Applicable Percentage,” generally 4.5 percent, of the reorganized Debtors. In connection with the filing of a Notice of Substantial Claim Ownership, a holder was required to indicate if it agreed to refrain from acquiring additional AMR and US Airways Group common stock and such other specified interests until after the effective date of the Debtors' Chapter 11 plan of reorganization, and to dispose of any such interests acquired since February 22, 2013 if directed to do so pursuant to the Revised Order. Based, in part, on the Notices of Substantial Claim Ownership received, the Debtors evaluated whether it will be necessary for them to seek an order in accordance with the “sell-down” procedures of the Revised Order, potentially requiring any “Substantial Claimholder” to sell down a portion of its unsecured claims to reasonably ensure that the requirements of section 382(l)(5) will be satisfied. No such order has been sought.
After July 1, 2013, any acquisition of unsecured claims by a Substantial Claimholder or a person (or in certain cases, group of persons) that would become a Substantial Claimholder as a result of the contemplated transaction is not permitted unless the potential transferee files a Claims Acquisition Request at least 10 business days prior to the proposed transfer date and receives written approval from the Debtors.
The Revised Procedures did not alter the procedures applicable with respect to “Substantial Equityholders,” namely persons who are, or as a result of a transaction would become, the beneficial owner of approximately 4.5 percent of the outstanding shares of AMR common stock.
Any acquisition, disposition, or other transfer of equity or claims in violation of the restrictions set forth in the Revised Order will be null and void ab initio and/or subject to sanctions as an act in violation of the automatic stay under sections 105(a) and 362 of the Bankruptcy Code. A further explanation of the Revised Procedures is contained in the Disclosure Statement.
Liabilities Subject to Compromise
The following table summarizes the components of liabilities subject to compromise included on the Condensed Consolidated Balance Sheet as of September 30, 2013 and December 31, 2012 (in millions):
 
September 30, 2013
 
December 31, 2012
Long-term debt
$
289

 
$
358

Estimated allowed claims on aircraft lease and debt obligations and facility lease and bond obligations
4,020

 
3,716

Pension and postretirement benefits
1,201

 
1,250

Accounts payable and other accrued liabilities
350

 
370

Other

 

Total liabilities subject to compromise
$
5,860

 
$
5,694

Long-term debt, including undersecured debt, classified as subject to compromise as of September 30, 2013 and December 31, 2012 consisted of (in millions):
 
September 30,
2013
 
December 31,
2012
Secured variable and fixed rate indebtedness due through 2023 (effective rates from 1.00% - 10.00% at September 30, 2013)
$
103

 
$
172

6.00%—8.50% special facility revenue bonds due through 2036
186

 
186

 
$
289

 
$
358

Liabilities subject to compromise refers to prepetition obligations which may be impacted by the Chapter 11 reorganization process. These amounts represent the Debtors’ current estimate of known or potential prepetition obligations to be resolved in connection with the Chapter 11 Cases.
In accordance with ASC 852, substantially all of the Company’s unsecured debt has been classified as liabilities subject to compromise. Additionally, certain of the Company’s undersecured debt instruments have also been classified as liabilities subject to compromise.

11


As a result of the modifications to the retirement benefits as discussed in Note 8 to the Condensed Consolidated Financial Statements, a portion of the pension and postretirement benefits liability, primarily relating to retiree medical and other benefits, was classified as liabilities subject to compromise.
Differences between liabilities the Debtors have estimated and the claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. The Company will continue to evaluate these liabilities throughout the Chapter 11 Cases and adjust amounts as necessary. Such adjustments may be material. In light of the expected number of creditors, the claims resolution process may take considerable time to complete. Accordingly, the ultimate number and amount of allowed claims is not presently known.
Reorganization Items, net
Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the Chapter 11 Cases. The following table summarizes the components included in reorganization items, net on the Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012 (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Pension and postretirement benefits
$

 
$
(66
)
 
$

 
$
(66
)
Aircraft and facility financing renegotiations and rejections(1)(2)(3)
66

 
133

 
285

 
1,648

Professional fees
48

 
51

 
126

 
168

Other
37

 
10

 
23

 
10

Total reorganization items, net
$
151

 
$
128

 
$
434


$
1,760

(1)
Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to the rejection or modification of financings related to aircraft. The Debtors record an estimated claim associated with the rejection or modification of a financing when the applicable motion is filed with the Bankruptcy Court to reject or modify such financing and the Debtors believe that it is probable the motion will be approved, and there is sufficient information to estimate the claim. See above, “Special Protection Applicable to Leases and Secured Financing of Aircraft and Aircraft Equipment,” for further information.
(2)
Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to entry of orders treated as unsecured claims with respect to facility agreements supporting certain issuances of special facility revenue bonds. The Debtors record an estimated claim associated with the treatment of claims with respect to facility agreements when the applicable motion is filed with the Bankruptcy Court and the Debtors believe that it is probable that the motion will be approved, and there is sufficient information to estimate the claim. See above, “Rejection of Executory Contracts,” for further information.
(3)
Pursuant to the Description of Plan of Reorganization, as defined and further described in Note 12 to the Condensed Consolidated Financial Statements, the Debtors agreed to allow certain post-petition unsecured claims on obligations. As a result, during the first nine months of 2013, the Company recorded reorganization charges to adjust estimated allowed claim amounts previously recorded on rejected special facility revenue bonds of $170 million and allowed general unsecured claims related to the 1990 and 1994 series of special facility revenue bonds that financed certain improvements at JFK, which is included in the table above.
Claims related to reorganization items are reflected in liabilities subject to compromise on the Condensed Consolidated Balance Sheet as of September 30, 2013.
2. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and

12


cash flows for the periods indicated. Results of operations for the periods presented herein are not necessarily indicative of results of operations for the entire year. American is a wholly owned subsidiary of AMR. The Condensed Consolidated Financial Statements also include the accounts of variable interest entities for which the Company is the primary beneficiary. For further information, refer to the consolidated financial statements and footnotes included in American’s Annual Report on Form 10-K filed on February 20, 2013, as amended by the Form 10-K/A filed on April 16, 2013 (2012 Form 10-K).
In accordance with GAAP, the Debtors have applied ASC 852 “Reorganizations” (ASC 852), in preparing the Condensed Consolidated Financial Statements. ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 Cases, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the Chapter 11 Cases are recorded in reorganization items, net on the accompanying Consolidated Statement of Operations. In addition, prepetition obligations that may be impacted by the Chapter 11 reorganization process have been classified on the Condensed Consolidated Balance Sheet in liabilities subject to compromise. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts.
Certain of our non-U.S. subsidiaries are not part of the Chapter 11 Cases. Since these non-US subsidiaries do not have significant transactions, we do not separately disclose the condensed combined financial statements of such non-U.S. subsidiaries in accordance with the requirements of reorganization accounting.
These Condensed Consolidated Financial Statements have also been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. Accordingly, the Condensed Consolidated Financial Statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Debtors be unable to continue as a going concern.
As a result of the Chapter 11 Cases, the satisfaction of our liabilities and funding of ongoing operations are subject to uncertainty and, accordingly, there is a substantial doubt of the Company’s ability to continue as a going concern.
The accompanying Condensed Consolidated Financial Statements do not purport to reflect or provide for the consequences of the Chapter 11 Cases, other than as set forth under “liabilities subject to compromise” on the accompanying Condensed Consolidated Balance Sheet and “income (loss) before reorganization items” and “reorganization items, net” on the accompanying Consolidated Statement of Operations (see Note 1 to the Condensed Consolidated Financial Statements for further information). In particular, the financial statements do not purport to show (1) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (2) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; or (3) as to operations, the effect of any changes that may be made to the Debtors’ business, including, without limitation, as a result of the Merger.

3. Commitments, Contingencies and Guarantees
American had total aircraft acquisition commitments as of September 30, 2013 as follows:
 
 
 
Remainder of 2013
 
2014
 
2015
 
2016
 
2017
 
2018 and Beyond
 
Total
Boeing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
737 Family
Purchase
 
5

 
20

 

 

 

 

 
25

Lease
 

 

 
20

 
20

 
20

 

 
60

737 MAX
Purchase
 

 

 

 

 
3

 
97

 
100

Lease
 

 

 

 

 

 

 

777-300 ER
Purchase
 
1

 
6

 
2

 
2

 

 

 
11

Lease
 

 

 

 

 

 

 

787 Family
Purchase
 

 
2

 
11

 
13

 
9

 
7

 
42

Lease
 

 

 

 

 

 

 

Airbus
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A320 Family
Purchase
 

 

 

 

 

 

 

Lease
 
10

 
35

 
30

 
25

 
20

 

 
120

A320 Neo
Purchase
 

 

 

 

 
10

 
120

 
130

Lease
 

 

 

 

 

 

 

Total
Purchase
 
6

 
28

 
13

 
15

 
22

 
224

 
308

Lease
 
10

 
35

 
50

 
45

 
40

 

 
180


13


As of September 30, 2013, payments for the above purchase commitments and certain engines, and future lease payments for all leased aircraft, in each case, subject to assumption of certain of the related agreements, are presented in the table below (in millions):
 
 
Remainder of 2013
 
2014
 
2015
 
2016
 
2017
 
2018 and Beyond
 
Total
Payments for above purchase commitments and certain engines (1)
 
$
371

 
$
1,937

 
$
1,652

 
$
2,008

 
$
2,038

 
$
12,298

 
$
20,304

Future lease payments for all leased aircraft (including aircraft not yet delivered)
 
$
237

 
$
1,018

 
$
1,228

 
$
1,447

 
$
1,673

 
$
12,385

 
$
17,988

(1)
These amounts are net of purchase deposits currently held by the manufacturers. American has granted Boeing a security interest in American’s purchase deposits with Boeing. The Company’s purchase deposits totaled $709 million as of September 30, 2013.
Capacity Purchase Agreements with Third-Party Regional Airlines
During 2012, American entered into capacity purchase agreements with SkyWest Airlines, Inc. (SkyWest) and with ExpressJet Airlines, Inc. (ExpressJet), both wholly owned subsidiaries of SkyWest, Inc., to provide 50-seat regional jet feed. Both airlines operate the services under the American Eagle® brand. SkyWest began service from Los Angeles International Airport on November 15, 2012, and ExpressJet began service from Dallas-Ft. Worth International Airport on February 14, 2013. In addition, Chautauqua Airlines, Inc. (Chautauqua) continues to operate under the brand AmericanConnection® under a capacity purchase agreement with American.
On January 23, 2013, American entered into a 12-year capacity purchase agreement with Republic Airlines Inc. (Republic), a subsidiary of Republic Airways Holdings, to provide large regional jet flying. Through the agreement, Republic will acquire 47 Embraer E-175 aircraft featuring a two-class cabin with 12 first class seats and 64 seats in the main cabin. The aircraft, which will fly under the American Eagle® brand, began phasing into operation at approximately two to three aircraft per month beginning in August 2013. All 47 aircraft are expected to be in operation by the first quarter of 2015.
As of September 30, 2013, American's minimum fixed obligations under its capacity purchase agreements with third-party regional airlines were as follows (approximately, in millions):
 
 
Remainder of 2013
 
2014
 
2015
 
2016
 
2017
 
2018 and Beyond
 
Total
Minimum fixed obligations under its capacity purchase agreements with third-party regional airlines (1)
 
$
67

 
$
521

 
$
670

 
$
676

 
$
520

 
$
4,360

 
$
6,814

(1)
These obligations contemplate minimum levels of flying by the third-party airlines under the respective agreements and also reflect assumptions regarding certain costs associated with the minimum levels of flying such as the cost of fuel, insurance, catering, property tax and landing fees. Accordingly, actual payments under these agreements could differ materially from the minimum fixed obligations set forth above.
Other
As a result of the filing of the Chapter 11 Cases, attempts to prosecute, collect, secure or enforce remedies with respect to prepetition claims against the Debtors are subject to the automatic stay provisions of Section 362(a) of the Bankruptcy Code, except in such cases where the Bankruptcy Court has entered an order modifying or lifting the automatic stay. Notwithstanding the general application of the automatic stay described above, governmental authorities, both domestic and foreign, may determine to continue actions brought under their regulatory powers. Therefore, the automatic stay may have no effect on certain matters, and the Debtors cannot predict the impact, if any, that its Chapter 11 Cases might have on its commitments and obligations.
4. Depreciation and Amortization
Accumulated depreciation of owned equipment and property at September 30, 2013 and December 31, 2012 was $10.6 billion and $10.4 billion, respectively. Accumulated amortization of equipment and property under capital leases at September 30, 2013 and December 31, 2012 was $242 million and $205 million, respectively.
5. Income Taxes
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 Company’s deferred tax asset valuation allowance decreased from $5.1 billion as of December 31, 2012 to $5.0 billion as of September 30, 2013, including the impact of comprehensive income for the nine months

14


ended September 30, 2013 and changes from other adjustments. These other adjustments include the realization of an income tax expense credit of approximately $30 million recorded for the nine months ended September 30, 2013 by the Company as a result of passage of the American Taxpayer Relief Act of 2012. There was no amount of adjustment recorded by the Company during the nine months ended September 30, 2012.
Under current accounting rules, the Company is required to consider all items (including items recorded in other comprehensive income) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. Due to the significant volatility of items impacting other comprehensive income on a quarterly basis, the Company generally does not record any such tax benefit allocation until all items impacting other comprehensive income are known for the annual period. Thus, any such interim tax benefit allocation may subsequently be subject to reversal.
6. Indebtedness and Leases
Long-term debt classified as not subject to compromise consisted of (in millions):
 
September 30, 2013
 
December 31, 2012
Secured variable and fixed rate indebtedness due through 2023 (effective rates from 1.00%-10.50% at September 30, 2013)
$
2,625

 
$
3,297

Enhanced equipment trust certificates (EETC) due through 2025 (rates from 4.00%-7.00% at September 30, 2013)
2,747

 
1,741

6.00%-8.50% special facility revenue bonds due through 2031
1,288

 
1,313

7.50% senior secured notes due 2016
1,000

 
1,000

Senior secured credit facility due 2019 (rate of 4.75% at September 30, 2013)
1,886

 

AAdvantage Miles advance purchase (net of discount of $43 million) (effective rate 8.3%)
652

 
772

Other
28

 
27

 
10,226

 
8,150

Less current maturities
1,335

 
1,388

Long-term debt, less current maturities
$
8,891

 
$
6,762

The financings listed in the table above are considered not subject to compromise. For information regarding the liabilities subject to compromise, see Note 1 to the Condensed Consolidated Financial Statements.
The Company’s future long-term debt and operating lease payments have changed as its ordered aircraft are delivered and such deliveries have been financed. As of September 30, 2013, maturities of long-term debt (including sinking fund requirements) for the next five years are (in millions):
 
 
Remainder of 2013
 
2014
 
2015
 
2016
 
2017
 
Total
Principal Not Subject to Compromise
 
$
568

 
$
887

 
$
814

 
$
1,728

 
$
528

 
$
4,525

Principal Subject to Compromise
 
82

 
147

 

 

 

 
229

Total Principal Amount
 
$
650

 
$
1,034

 
$
814

 
$
1,728

 
$
528

 
$
4,754

Principal Not Subject to Compromise and Subject to Compromise includes payments not made due to the Chapter 11 Cases of $451 million and $74 million, respectively.
Future minimum lease payments required under aircraft and facility operating leases that have initial or remaining non-cancelable lease terms in excess of a year as of September 30, 2013, were (in millions):
 
 
Remainder of 2013
 
2014
 
2015
 
2016
 
2017
 
2018 and Beyond
 
Total

Future minimum lease payments
 
$
324

 
$
1,212

 
$
1,139

 
$
1,053

 
$
998

 
$
6,250

 
$
10,976

As of September 30, 2013, $95 million and $307 million are included on the accompanying balance sheet in Liabilities Subject to Compromise and Accrued liabilities and other liabilities and deferred credits, respectively, relating to rent expense being recorded in advance of future operating lease payments.

15


As of September 30, 2013, AMR had issued guarantees covering approximately $1.5 billion of American’s tax-exempt bond debt (and interest thereon) and $5.2 billion of American’s secured debt (and interest thereon). American had issued guarantees covering approximately $842 million of AMR’s unsecured debt (and interest thereon).
Financing Transactions
On March 12, 2013, American closed its private offering of two tranches of enhanced equipment trust certificates (the Series 2013-1A/B EETCs) in the aggregate face amount of $664 million. The Series 2013-1A/B EETCs are comprised of a senior tranche of Class A Certificates with an interest rate of 4.00% per annum and a final expected distribution date of July 15, 2025, and a junior tranche of Class B Certificates with an interest rate of 5.625% per annum and a final expected distribution date of January 15, 2021. The Series 2013-1A/B EETCs represent an interest in the assets of two separate pass through trusts, each of which hold equipment notes issued by American. Interest on the issued and outstanding equipment notes will be payable semiannually on January 15 and July 15 of each year, commencing on July 15, 2013, and principal on such equipment notes is scheduled for payment on January 15 and July 15 of certain years, commencing on January 15, 2014. As of September 30, 2013, the equipment notes are secured by eight currently owned Boeing 737-823 aircraft, one currently owned Boeing 777-223ER aircraft, and four currently owned Boeing 777-323ER aircraft. The certificates were offered in the U.S. to qualified institutional buyers, as defined in, and in reliance on, Rule 144A under the Securities Act of 1933, as amended (the Securities Act).
On June 5, 2013, American closed its private offering of Class C enhanced equipment trust certificates (the Series 2013-1C EETCs) in the aggregate face amount of $120 million. The Series 2013-1C EETCs rank junior to the Series 2013-1A/B EETCs. The Series 2013-1C EETCs were issued with an interest rate of 6.125% per annum and a final expected distribution date of July 15, 2018. The 2013-1C EETCs represent an interest in the assets of a separate pass through trust, which will hold certain equipment notes issued by American. The Series 2013-1C EETCs are secured by the same aircraft securing the Series 2013-1A/B EETCs. The certificates were offered in the U.S. to qualified institutional buyers, as defined in, and in reliance on, Rule 144A under the Securities Act.
On June 27, 2013, American Airlines and AMR Corporation entered into a Credit and Guaranty Agreement (the Credit Agreement) with certain lenders. The Credit Agreement, as amended in August 2013, provides for a $1.9 billion term loan facility (the Term Loan Facility) and a $1.0 billion revolving credit facility (the Revolving Facility and, together with the Term Loan Facility, the Credit Facilities). As of September 30, 2013, American had borrowed $1.9 billion under the Term Loan Facility. The Credit Facilities are secured obligations of American and guaranteed by AMR. The Revolving Facility provides that American may from time to time borrow, repay and reborrow loans thereunder and have letters of credit issued thereunder in an aggregate amount outstanding at any time of up to $1.0 billion. As of September 30, 2013, there were no borrowings outstanding under the Revolving Facility.
Upon consummation of the Merger, US Airways Group and US Airways will be required to join the Credit Facilities as guarantors. Following the joinder, certain minimum dollar-thresholds under the negative and financial covenants in the Credit Facilities automatically will be increased.
Except under certain circumstances, American may not make drawings under the Revolving Facility until the date (the Plan Effective Date) on which certain conditions set forth in the Credit Agreement have been satisfied and the effective date has occurred under (i) a Chapter 11 plan of reorganization that does not differ from the plan of reorganization filed with the Bankruptcy Court on April 15, 2013 in any manner adverse to the lenders without consent (the Approved Plan of Reorganization) or (ii) an alternative plan of reorganization that satisfies certain financial metrics set forth in the Credit Agreement (an Alternative Plan).
The Term Loan Facility and Revolving Facility mature on June 27, 2019 and June 27, 2018, respectively, unless otherwise extended by the applicable parties, except that if the Plan Effective Date has not occurred on or before June 27, 2014 under the Approved Plan of Reorganization or an Alternative Plan, then the Term Loan Facility and Revolving Facility mature on June 27, 2014, and if the effective date under a Chapter 11 plan of reorganization occurs under a plan of reorganization that is neither the Approved Plan of Reorganization nor an Alternative Plan, then the Term Loan Facility and Revolving Facility mature on such date. As a result of the DOJ Action, it is uncertain whether the Plan Effective Date will occur in compliance with such conditions, and therefore it cannot be predicted at this time whether or not the Term Loan Facility and the Revolving Facility will mature early on June 27, 2014.
Voluntary prepayments may be made by American at any time, with a premium of 1.00% applicable to certain prepayments made prior to the date that is six months following June 27, 2013. Mandatory prepayments at par of term loans and revolving loans are required to the extent necessary to comply with American's covenants regarding the collateral coverage ratio and certain dispositions of collateral. In addition, if a “change of control” (as defined in the Credit Agreement) occurs with respect to AMR, American will be required to repay at par the loans outstanding under the Credit Facilities and terminate the Revolving Facility. The Merger would not constitute a change of control.

16


The Credit Facilities bear interest at an index rate plus an applicable index margin or, at American's option, LIBOR (subject to a floor of 1.00%, with respect to the Term Loan) plus an applicable LIBOR margin. The applicable LIBOR margins are 3.75% and 3.50% for borrowings under the Term Loan Facility and the Revolving Facility, respectively. Subject to certain limitations and exceptions, the Credit Facilities are secured by certain route authorities, slots and foreign gate leaseholds utilized by American in providing scheduled air carrier service between the United States and South American countries, specifically Argentina, Bolivia, Brazil, Chile, Columbia, Ecuador, Paraguay, Peru, Uruguay and Venezuela.
The Credit Facilities contain events of default customary for similar financings, including cross-acceleration to other material indebtedness. Upon the occurrence of an event of default, the outstanding obligations under the Credit Facilities may be accelerated and become due and payable immediately. The Credit Facilities also include affirmative, negative, and financial covenants that, among other things, limit the ability of AMR and its restricted subsidiaries to pay dividends and make certain other payments, make certain investments, incur additional indebtedness, incur liens on the collateral, dispose of the collateral, enter into certain affiliate transactions and engage in certain business activities, in each case subject to certain exceptions. In addition, AMR must maintain a minimum aggregate liquidity (as defined in the Credit Agreement) of $1.5 billion prior to the Merger and $2.0 billion following the Merger.
In June 2013, American also remarketed approximately $216 million of Tulsa Municipal Airport Revenue Refunding Bonds Trust Series 2000B, 2001A, and 2001B due June 1, 2035 (Series 2000B) and December 1, 2035 (Series 2001 A&B).
The Company filed a motion with the Bankruptcy Court on October 9, 2012, requesting entry of an order authorizing American to, among other things: (i) obtain postpetition financing in an amount of up to $1.5 billion secured on a first priority basis by, among other things, up to 41 Boeing 737-823 aircraft, 14 Boeing 757-223 aircraft, one Boeing 767-323ER aircraft and 19 Boeing 777-223ER aircraft as part of a new enhanced equipment trust certificate (EETC) financing (the Refinancing EETC) to be offered pursuant to Rule 144A under the Securities Act, and (ii) use cash on hand (including proceeds of the Refinancing EETC) to indefeasibly repay the existing prepetition obligations secured by such aircraft, as applicable, which are currently financed through, as the case may be, an EETC financing entered into by American in July 2009 (the Series 2009-1 Pass Through Certificates), a secured notes financing entered into by American in July 2009 (the 2009-2 Senior Secured Notes) and an EETC financing entered into by American in October 2011 (the Series 2011-2 Pass Through Certificates and, together with the Series 2009-1 Pass Through Certificates and the 2009-2 Senior Secured Notes, the Existing Financings), in each case without the payment of any make-whole amount or other premium or prepayment penalty.
The Bankruptcy Court approved the motion on January 17, 2013 and entered an order (the EETC Order) to such effect on February 1, 2013. The trustees for the Existing Financings appealed the EETC Order and judgments rendered in certain related adversary proceedings. The appeals (the Appeals) were briefed and oral argument before the United States Court of Appeals for the Second Circuit (the Second Circuit) was heard on June 20, 2013. On September 12, 2013, the Second Circuit fully affirmed the Company's right to repay the Existing Financings without the payment of any make-whole amount or other premium or prepayment penalty. On September 26, 2013, the trustees for the Existing Financings filed a petition for an en banc rehearing of the Appeals by the Second Circuit. The Second Circuit has not yet ruled on such request for rehearing. If the Second Circuit ultimately denies such request for rehearing, the trustees for the Existing Financings may attempt to continue the Appeals by petitioning for certiorari to the Supreme Court. American intends to continue to assert vigorously its rights to repay the Existing Financings without the payment of any make-whole amounts or other premium or prepayment penalty.
On July 31, 2013, the Company closed its private offering of the Refinancing EETC (the Series 2013-2A EETC) in the aggregate face amount of $1.4 billion with an interest rate of 4.95% per annum and a final expected distribution date of January 15, 2023. In September 2013, American repaid the Existing Financings, including securities tendered to the Company under a tender offer for the Existing Financings that commenced on June 27, 2013, and received the proceeds from the Series 2013-2A EETC. In conjunction with the repayment of the Existing Financings, the Company incurred cash charges for penalty interest of $19 million, included in interest expense, and a charge of $54 million, included in Miscellaneous, net, of which $21 million is cash, related to the premium on tender for the Existing Financings, and $33 million is non-cash, related to the write-off of unamortized issuance costs. The 2013-2A EETC represents an interest in the assets of a separate pass through trust, which will hold certain equipment notes issued by American. The Series 2013-2A EETC is secured by the same aircraft previously used to secure the Existing Financings. The certificates were offered in the U.S. to qualified institutional buyers, as defined in, and in reliance on, Rule 144A under the Securities Act.
On October 2, 2013, the Company filed a motion with the Bankruptcy Court requesting entry of an order authorizing American to obtain postpetition financing in an amount of up to $785 million to be under up to two additional subordinate tranches to EETCs secured on a first priority basis by the same aircraft securing the equipment notes issued by the Company in connection with the Series 2013-2A EETC.

17


Sale-leaseback Arrangements
American has arranged sale-leaseback financings with certain leasing companies for 25 Boeing 737-800 aircraft scheduled to be delivered from October 2013 through 2014. The financings of each aircraft under these arrangements are subject to certain terms and conditions. In addition, in some instances, they are also subject to collaboration with the Creditors' Committee and other key stakeholders and to the approval of the Bankruptcy Court.
During the third quarter, American financed nine Boeing 737-800 aircraft under sale-leaseback arrangements, which are accounted for as operating leases. These sale-leaseback transactions resulted in gains which are being amortized over the respective remaining lease terms.
Collateral Related Covenants
Certain of American’s debt financing agreements contain loan to value ratio covenants and require American to periodically appraise the collateral. Pursuant to such agreements, if the loan to value ratio exceeds a specified threshold, American is required, as applicable, to subject additional qualifying collateral (which in some cases may include cash collateral), or pay down such financing, in whole or in part, with premium (if any), or pay additional interest on the related indebtedness, as described below.
Specifically, American is required to meet certain collateral coverage tests on a periodic basis on three financing transactions: (1) 10.5% $450 million Senior Secured Notes due 2012 (the 10.5% Notes), (2) 7.5% Senior Secured Notes due 2016 (the Senior Secured Notes) and (3) Credit Facilities, as described below:
 
 
10.5% Notes
 
Senior Secured Notes
Credit Facilities
Frequency of Appraisals
 
Semi-Annual
(April and October)
 
Semi-Annual
(June and December)
Semi-Annual
(June and December)
LTV Requirement
 
43%; failure to meet collateral
test requires posting of additional
collateral
 
1.5x Collateral valuation to
amount of debt outstanding
(67% LTV); failure to meet
collateral test results in
American paying 2% additional
interest until the ratio is at least
1.5x; additional collateral can be
posted, or debt repaid, to meet this test
1.6x Collateral valuation to
amount of debt outstanding
(62.5% LTV); if collateral test is not met, American must post additional collateral and/or repay debt until the test is met
LTV as of Last Measurement Date
 
56.6%
 
38.7%
33.5%
Collateral Description
 
Aircraft Type
 
# of
Aircraft
 
Generally, certain route authorities, take-off and landing slots, and rights to airport facilities used by American to operate certain services between the U.S. and London Heathrow, Tokyo Narita/Haneda, and China
Generally, certain route authorities, take-off and landing slots, and rights to airport facilities used by American to operate all services between the U.S. and South America
 
MD-80
 
74

 
 
B757-200
 
41

 
 
B767-200ER
 
3

 
 
B767-300ER
 
25

 
 
TOTAL
 
143

 
At September 30, 2013, the Company was in compliance with the most recently completed collateral coverage tests for the Senior Secured Notes and the Credit Facilities. As of September 30, 2013, American had $41 million of cash collateral posted with respect to the 10.5% Notes, which matured in 2012. The Company has not satisfied the debt with respect to the 10.5% Notes due to the ongoing Chapter 11 Cases.
Other
Almost all of the Company’s aircraft assets (including aircraft and aircraft-related assets eligible for the benefits of section 1110 of the Bankruptcy Code) are encumbered, and the Company has a very limited quantity of assets which could be used as collateral in financing.
The Chapter 11 Cases triggered defaults on substantially all debt and lease obligations of the Debtors. However, under section 362 of the Bankruptcy Code, the commencement of the Chapter 11 Cases automatically stayed most creditor actions against the Debtors’ estates.

18


As discussed in Note 1 to the Condensed Consolidated Financial Statements, the Company has been using the benefits afforded by the Bankruptcy Code to restructure the terms of much of its indebtedness and lease obligations. The Company cannot predict at this time the outcome of its efforts to restructure its indebtedness and lease obligations. It is possible that holders of the Company's unsecured indebtedness may lose a portion of their investment depending on the outcome of the Chapter 11 Cases.
7. Fair Value Measurements
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 Company’s short-term investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. The Company’s fuel derivative contracts, which consist primarily of collars (consisting of a purchased call option and a sold put option) and call spreads (consisting of a purchased call option and a sold call option), are valued using energy and commodity market data which is derived by combining raw inputs with quantitative models and processes to generate forward curves and volatilities. Heating oil, jet fuel and crude oil are the primary underlying commodities in the hedge portfolio. No changes in valuation techniques or inputs occurred during the nine months ended September 30, 2013.
Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):
 
Fair Value Measurements as of September 30, 2013
Description
Total
 
Level 1
 
Level 2
 
Level 3
Short-term investments (1)(2)
 
 
 
 
 
 
 
Money market funds
$
543

 
$
543

 
$

 
$

Government agency investments
1,136

 

 
1,136

 

Repurchase investments
209

 

 
209

 

Corporate obligations
3,448

 

 
3,448

 

Bank notes / Certificates of deposit / Time deposits
707

 

 
707

 

 
6,043

 
543

 
5,500

 

Restricted cash and short-term investments (1)
935

 
879

 
56

 

Fuel derivative contracts, net (1)
58

 

 
58

 

Total
$
7,036

 
$
1,422

 
$
5,614

 
$

 
(1)
Unrealized gains or losses on short-term investments, restricted cash and short-term investments and derivatives qualifying for hedge accounting are recorded in Accumulated other comprehensive income (loss) at each measurement date.
(2)  
The Company’s short-term investments mature in one year or less except for $450 million of Bank notes, $635 million of U.S. Government obligations and $1.6 billion of Corporate obligations which have maturity dates exceeding one year.
A $56 million Level 1 restricted money market security was liquidated in August 2013. The cash proceeds were subsequently reinvested in a Level 2 U.S. Treasury Obligation. The Company’s policy regarding the recording of transfers between levels is to reflect any such transfers at the end of the reporting period.
As of September 30, 2013, the Company had no exposure to European sovereign debt.
The fair values of the Company’s long-term debt classified as Level 2 were estimated using quoted market prices or discounted cash flow analyses, based on the Company’s current estimated incremental borrowing rates for similar types of borrowing arrangements. All of the Company’s long-term debt not classified as subject to compromise is classified as Level 2.

19


The carrying value and estimated fair values of the Company’s long-term debt, including current maturities, not classified as subject to compromise, were (in millions):
 
September 30, 2013
 
December 31, 2012
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Secured variable and fixed rate indebtedness
$
2,625

 
$
2,570

 
$
3,297

 
$
3,143

Enhanced equipment trust certificates
2,747

 
2,725

 
1,741

 
1,811

6.0%—8.5% special facility revenue bonds
1,288

 
1,368

 
1,313

 
1,308

7.50% senior secured notes
1,000

 
1,190

 
1,000

 
1,074

Senior secured credit facility due 2019 (rate of 4.75% at September 30, 2013)
1,886

 
1,872

 

 

AAdvantage Miles advance purchase
652

 
658

 
772

 
779

Other
28

 
28

 
27

 
27

 
$
10,226

 
$
10,411

 
$
8,150

 
$
8,142

The carrying value and estimated fair value of the Company’s long-term debt, including current maturities, classified as subject to compromise, were (in millions):
 
September 30, 2013
 
December 31, 2012
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Secured variable and fixed rate indebtedness
$
103

 
$
107

 
$
172

 
$
154

6.0%—8.5% special facility revenue bonds
186

 
176

 
186

 
186

 
$
289

 
$
283

 
$
358

 
$
340

All of the Company’s long-term debt classified as subject to compromise is classified as Level 2.

20



8. Retirement Benefits
The following tables provide the components of net periodic benefit cost for the three and nine months ended September 30, 2013 and 2012 (in millions):
 
Pension Benefits
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
1

 
$
104

 
$
3

 
$
312

Interest cost
164

 
191

 
490

 
573

Expected return on assets
(180
)
 
(166
)
 
(540
)
 
(498
)
Amortization of:
 
 
 
 
 
 
 
    Prior service cost
7

 
3

 
21

 
10

    Unrecognized net (gain) loss
23

 
63

 
69

 
187

Net periodic benefit cost
$
15

 
$
195

 
$
43

 
$
584

 
Retiree Medical and Other Benefits
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$

 
$
15

 
$

 
$
45

Interest cost
13

 
38

 
39

 
114

Expected return on assets
(4
)
 
(4
)
 
(12
)
 
(12
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost
(61
)
 
(7
)
 
(183
)
 
(21
)
Unrecognized net (gain) loss
(2
)
 
(2
)
 
(6
)
 
(6
)
Net periodic benefit cost
$
(54
)
 
$
40

 
$
(162
)
 
$
120

The Company is required to make minimum contributions to its defined benefit pension plans under the minimum funding requirements of ERISA, the Pension Funding Equity Act of 2004, the Pension Protection Act of 2006, and the Pension Relief Act of 2010. As a result of the Chapter 11 Cases, American contributed $87.6 million to its U.S. defined benefit pension plans during the first nine months of 2013 covering post-petition periods. On October 15, 2013, the Company contributed an additional $16.8 million to its defined benefit pension plans. Prior to emerging from Chapter 11 (see Note 1 to the Condensed Consolidated Financial Statements for further information), AMR and/or its subsidiaries will make all minimum required contributions to each AMR compensation and benefit plan that are required to have been made and were not made prior to emergence. As a result of the Company contributing only the post-petition portion of required contributions, the PBGC filed a lien against certain assets of the Company in 2012.
Recent Modifications to Pension and Other Post-Employment Benefits
The Company's defined benefit pension plans were frozen effective November 1, 2012. Eligible employees began to receive a replacement benefit under the $uper $aver 401(k) Plan on November 1, 2012.
In December 2012, the Pilot A Plan, a defined benefit plan, was amended to remove the lump-sum option and the installment option forms of benefit effective December 31, 2012. A small group of American pilots is appealing the Bankruptcy Court's decision authorizing American to eliminate the lump sum option and installment option forms of benefit. This is the same group of pilots that is appealing the Bankruptcy Court's decisions authorizing American to reject the pilot CBA and approving the new pilot CBA. All of these appeals have been consolidated, and are pending in the U.S. District Court for the Southern District of New York.

21


The Pilot B Plan, a defined contribution plan, was terminated on November 30, 2012. As of September 30, 2013, more than 99% of Plan B assets have been distributed and, with the exception of a small residual balance to cover final plan expenses, we expect the remaining funds to be distributed by the end of the fourth quarter of 2013.
On July 6, 2012, the Company commenced an adversary proceeding in the Bankruptcy Court seeking a determination on the issue of vesting for former employees who retired before November 1, 2012 and were eligible for certain retiree medical coverage. The Court held a hearing on January 23, 2013 and has not ruled on this matter as of the date of this report. The Company has been negotiating with the retiree committee since July 2012, seeking a consensual agreement to terminate subsidized retiree medical coverage and life insurance coverage.
As a result of the modifications to the retirement benefits as discussed above, a portion of the pension and postretirement benefits liability, primarily relating to retiree medical and other benefits, was classified as liabilities subject to compromise. See Note 1 to the Condensed Consolidated Financial Statements for the breakout of liabilities subject to compromise, including that related to pension and postretirement benefits.
9. Special Charges and Merger Related Expenses
Special Charges
Based on agreements reached with various workgroups in 2012, the Company expects to reduce a total of approximately 10,500 positions. Consequently, during 2012, the Company recorded charges for severance related costs associated with the voluntary and involuntary reductions in certain work groups. The severance charges will be paid through the end of 2013.
The following table summarizes the components of the Company’s special charges and the remaining accruals for these charges as of September 30, 2013 (in millions):
 
Facility Exit
Costs
 
Employee
Charges
 
Total
Remaining accrual at December 31, 2012
$
4

 
$
192

 
$
196

Special charges
6

 
13

 
19

Non-cash charges
(3
)
 

 
(3
)
Adjustments
(4
)
 

 
(4
)
Payments
(3
)
 
(154
)
 
(157
)
Remaining accrual at September 30, 2013
$

 
$
51

 
$
51

Merger Related Expenses
Merger related expenses for the three and nine months ended September 30, 2013 were $13.8 million and $35.4 million, respectively. See Note 12 to the Condensed Consolidated Financial Statements for information on the Merger Agreement.
10. Financial Instruments and Risk Management
As part of the Company’s risk management program, it uses a variety of financial instruments, primarily heating oil, jet fuel, and Brent crude collars (consisting of a purchased call option and a sold put option) and call spreads (consisting of a purchased call option and a sold call option), as cash flow hedges to mitigate commodity price risk. The Company does not hold or issue derivative financial instruments for trading purposes. As of September 30, 2013, the Company had fuel derivative contracts outstanding covering 19 million barrels of jet fuel that will be settled over the next 18 months. A deterioration of the Company’s liquidity position and its ongoing Chapter 11 Cases may negatively affect the Company’s ability to hedge fuel in the future.
The net fair value of the Company’s fuel hedging agreements at September 30, 2013 and December 31, 2012, representing the amount the Company would receive upon termination of the agreements (net of settled contract assets), totaled $51 million and $62 million, respectively. As of September 30, 2013, the Company estimates that during the next twelve months it will reclassify from Accumulated other comprehensive loss into earnings of approximately $9 million in net losses.

22


The impact of aircraft fuel derivative instruments (all cash flow hedges) on the Company’s Consolidated Statements of Operations is depicted below (in millions):
 
Location in Consolidated Statements of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (1)
Aircraft fuel
 
$
(11
)
 
$
(12
)
 
$
(23
)
 
$
13

Amount of Gain (Loss) Recognized in Income on Derivative (2)
Aircraft fuel
 
$
36

 
$
2

 
$
25

 
$
(3
)
Amount of Gain (Loss) Recognized in Consolidated Statements of Operations (3)
Aircraft fuel
 
$
25

 
$
(10
)
 
$
2

 
$
10

(1)    Includes the effective portion of hedge gain (loss)
(2)    Includes the ineffective portion of hedge gain (loss)
(3)    Includes the effective and ineffective portion of hedge gain (loss)
The impact of aircraft fuel derivative instruments (all cash flow hedges) on the Company’s Consolidated Statements of Comprehensive Income is depicted below (in millions):
 
Location
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Amount of (Gain) Loss Reclassified from Accumulated OCI into Income (1)
Reclassification into Earnings
 
$
11

 
$
12

 
$
23

 
$
(13
)
Amount of Gain (Loss) Recognized in OCI on Derivative (1)
Change in Fair Value
 
$
23

 
$
86

 
$
(47
)
 
$
29

Amount of Gain (Loss) Recognized in Consolidated Statements of Comprehensive Income
Change in fair value
 
$
34

 
$
98

 
$
(24
)
 
$
16

(1)    Includes the effective portion of hedge gain (loss)
The Company is party to certain interest rate swap agreements that are accounted for as cash flow hedges. Ineffectiveness for these instruments is required to be measured at each reporting period. The ineffectiveness and fair value associated with all of the Company's interest rate cash flow hedges for all periods presented was not material.
While certain of the Company's fuel derivatives are subject to enforceable master netting agreements with its counterparties, the Company does not offset its fuel derivative assets and liabilities in its Condensed Consolidated Balance Sheets. Certain of these agreements would also allow for the offsetting of fuel derivatives with interest rate derivatives. The impact of aircraft fuel derivative instruments (all cash flow hedges) on the Company's Condensed Consolidated Balance Sheets, and the impact of offsetting aircraft fuel derivative instruments, is depicted below (in millions):
 
As of September 30, 2013
 
As of December 31, 2012
Gross Asset (1)
$
58

 
$
65

Gross Liability (2)

 

Net Recognized Asset (Liability) in Balance Sheet
$
58

 
$
65

 
 
 
 
Gross Asset (Liability) Offset in Balance Sheet:
 
 
 
Financial Instruments

 
$

Cash Collateral Received (Posted) (3)

 

Net Amount
$
58

 
$
65

(1)
Fuel derivative assets are included in Fuel derivative contracts on the accompanying Condensed Consolidated Balance Sheets.
(2)
Fuel derivative liabilities are included in Accrued liabilities on the accompanying Condensed Consolidated Balance Sheets.
(3)
As of September 30, 2013, the Company had posted cash collateral of an immaterial amount.
The Company is also exposed to credit losses in the event of non-performance by counterparties to these financial instruments, and although no assurances can be given, the Company does not expect any of the counterparties to fail to meet their obligations.

23


The credit exposure related to these financial instruments is represented by the fair value of contracts with a positive fair value at the reporting date, reduced by the effects of master netting agreements. To manage credit risks, the Company selects counterparties based on credit ratings, limits its exposure to a single counterparty under defined guidelines, and monitors the market position of the program and its relative market position with each counterparty. The Company also maintains industry-standard security agreements with a number of its counterparties which may require the Company or the counterparty to post collateral if the value of selected instruments exceeds specified mark-to-market thresholds or upon certain changes in credit ratings. The amount of collateral required to be posted from time to time may be substantial.
11. Accumulated Other Comprehensive Income (Loss)
The following table sets forth the changes in accumulated other comprehensive income (loss) by component (in millions):
 
 
Pension and retiree medical liability
 
Unrealized gain (loss) on investments
 
Derivative financial instruments
 
Income tax benefit (expense)
 
Total
Balance at December 31, 2012
 
$
(2,322
)
 
$
2

 
$
13

 
$
(781
)
 
$
(3,088
)
     Other comprehensive income (loss) before reclassifications
 

 
(3
)
 
(34
)
 

 
(37
)
     Amounts reclassified from accumulated other comprehensive income (loss)
 
(99
)
 

 
23

 

 
(76
)
Net current-period other comprehensive income (loss)
 
$
(99
)
 
$
(3
)
 
$
(11
)
 
$

 
$
(113
)
Balance at September 30, 2013
 
$
(2,421
)
 
$
(1
)
 
$
2

 
$
(781
)
 
$
(3,201
)
Reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2013 are as follows (in millions):

Details about accumulated other comprehensive income (loss) components
 
Amount reclassified from accumulated other comprehensive income (loss)
 
Affected line item in the statement where net income (loss) is presented
 
Three Months Ended September 30, 2013
 
Nine Months Ended September 30, 2013
 
Amortization of pension and retiree medical liability:
 
 
 
 
 
 
     Prior service cost
 
$
(54
)
 
$
(162
)
 
Wages, salaries and benefits
     Actuarial loss
 
21

 
63

 
Wages, salaries and benefits
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
     Cash flow hedges
 
11

 
23

 
Aircraft fuel
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(22
)
 
$
(76
)
 
 
12. Merger Agreement and Plan of Reorganization
Description of Agreement and Plan of Merger
On February 13, 2013, AMR, US Airways Group and AMR Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of AMR (Merger Sub), entered into an Agreement and Plan of Merger (as subsequently amended, the Merger Agreement), providing for the Merger. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into US Airways Group, with US Airways Group surviving as a wholly owned subsidiary of AMR. It is anticipated that immediately following the Merger closing, AMR will change its name to American Airlines Group Inc. (AAG). Following the Merger, AAG will own, directly or indirectly, all of the equity interests of American, US Airways Group and their direct and indirect subsidiaries. The Bankruptcy Court stated that it will enter the Confirmation Order, confirming the Plan, which includes the Merger Agreement and the transactions contemplated thereby, including the Merger.
Subject to the terms and conditions of the Merger Agreement, which was approved by the boards of directors of the respective parties and the stockholders of US Airways Group, upon completion of the Merger, US Airways Group stockholders will receive one share of AAG Common Stock for each share of US Airways Group common stock. The aggregate number of shares of AAG

24


Common Stock issuable to holders of US Airways Group equity instruments (including stockholders and holders of convertible notes, options, stock appreciation rights and restricted stock units) will represent 28% of the diluted equity of AAG after giving effect to the Plan. The remaining 72% diluted equity ownership of AAG will be distributable, pursuant to the Plan, to the Debtors' stakeholders, labor unions and certain employees. All of the equity interests in AAG will be issued initially solely pursuant to the Merger Agreement or the Plan. Pursuant to the Plan, holders of AMR equity interests are expected to receive a recovery on such interests in the form of a distribution of AAG Common Stock.
On August 13, 2013, the DOJ Action was commenced to enjoin the Merger. The Company and US Airways Group will vigorously contest the proposed matter. The trial is scheduled to commence on November 25, 2013.
Although the Bankruptcy Court has stated that it will enter the Confirmation Order, the ultimate resolution of the DOJ Action and its impact on the Company and the Merger is uncertain, and accordingly, it cannot be predicted at this time whether or not the Plan will become effective or the Merger will occur.
The Merger, in conjunction with the Plan, is intended to qualify, for federal income tax purposes, as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
AMR and US Airways Group have each made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants to conduct their businesses in the ordinary and usual course between the execution of the Merger Agreement and the consummation of the Merger, subject to certain restrictions as set forth in the Merger Agreement. In addition, the Merger Agreement contains “no shop” provisions that restrict each party's ability to initiate, solicit or knowingly encourage or facilitate competing third-party proposals for any transaction involving a merger of such party or the acquisition of a significant portion of its stock or assets, although each party may consider competing, unsolicited proposals and enter into discussions or negotiations regarding such proposals, if its board of directors determines that any such acquisition proposal constitutes, or is reasonably likely to lead to, a superior proposal and that the failure to take such action is reasonably likely to be inconsistent with its fiduciary duties under applicable law.
Consummation of the Merger is subject to customary conditions, including, among others: (i) approval by the stockholders of US Airways Group; (ii) expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the receipt of certain other regulatory approvals; (iii) absence of any order or injunction prohibiting the consummation of the Merger; (iv) Bankruptcy Court confirmation of the Plan, which must contain certain specified provisions defined in the Merger Agreement; (v) subject to certain exceptions, the accuracy of representations and warranties with respect to the business of AMR or US Airways Group, as applicable; (vi) each of AMR and US Airways Group having performed their respective obligations pursuant to the Merger Agreement; and (vii) receipt by each of the Company and US Airways Group of a customary tax opinion.
The Merger Agreement contains certain termination rights, giving the parties the right to terminate the Merger Agreement by the earlier of (A) the later of (i) January 18, 2014 and (ii) the fifteenth (15) day after the United States District Court for the District of Columbia (the District Court) enters an order in the trial in the DOJ Action in favor of American and US Airways, provided that such order is entered on or prior to January 17, 2014, and (B) five (5) days after the District Court enters a final, but appealable, order permanently restraining, enjoining or otherwise prohibiting consummation of the Merger following the trial in the DOJ Action. The Merger Agreement further provides that, upon termination of the Merger Agreement under specified circumstances, (i) AMR may be required to pay US Airways Group a termination fee of $135 million in the event it terminates the agreement to enter into a superior proposal and $195 million if US Airways Group terminates the Merger Agreement in the event of a knowing and deliberate breach of the Merger Agreement by AMR and (ii) US Airways Group may be required to pay AMR a termination fee of $55 million in the event it terminates the agreement to enter into a superior proposal and $195 million if AMR terminates the Merger Agreement in the event of a knowing and deliberate breach of the Merger Agreement by US Airways Group.
Description of Plan of Reorganization
The Plan implements the Merger, incorporates a compromise and settlement of certain intercreditor and intercompany claim issues, and contains the following provisions relating to the treatment of prepetition unsecured claims against the Debtors and equity interests in AMR:
all creditors holding general unsecured claims against American that are guaranteed by AMR and general unsecured claims against AMR that are guaranteed by American (Double-Dip Unsecured Claims) will be treated the same under the Plan.
all creditors asserting Single-Dip Unsecured Claims will be treated the same regardless of whether the claim is asserted against the AMR Debtors, the American Debtors, or other Debtors. As used herein, “Single-Dip Unsecured Claims” means the general unsecured claims against the Debtors that are not guaranteed by any other Debtor, other than the claims of the Debtors’ labor unions (the Plan also provides for the distribution of shares of AAG Common Stock to certain of

25


the Debtors non-union employees
unless they elect treatment as holders of Single-Dip Unsecured Claims, holders of Double-Dip Unsecured Claims will receive their recovery in shares of AAG convertible preferred stock (the AAG Convertible Preferred Stock) with a face amount equal to the allowed amount of their claims, including post-petition interest at the non-default rate;
holders of Single-Dip Unsecured Claims, and holders of Double-Dip Unsecured Claims that elect to receive such treatment, will receive a portion of their recovery in shares of AAG Convertible Preferred Stock and a portion in shares of AAG Common Stock;
one quarter of the shares of AAG Convertible Preferred Stock will be mandatorily convertible into shares of AAG Common Stock on each of the 30th, 60th, 90th, and 120th day after the Plan Effective Date. In addition, subject to certain limitations, holders of AAG Convertible Preferred Stock may elect to convert up to $250 million of the AAG Convertible Preferred Stock during each 30-day period following the Plan Effective Date. Upon the conversion of the remaining AAG Convertible Preferred Stock on the 120th day after the Plan Effective Date, all AAG Convertible Preferred Stock will have been converted to AAG Common Stock and no AAG Convertible Preferred Stock will then remain outstanding (the conversion price of the AAG Convertible Preferred Stock will vary on each conversion date, based on the volume weighted average price of the shares of AAG Common Stock on the five trading days immediately preceding each conversion date, at a 3.5% discount, subject to a cap and a floor price);
holders of existing equity securities in AMR will receive an initial distribution of shares of AAG Common Stock representing 3.5% of the total number of shares of AAG Common Stock (on an as-converted basis) in addition to the potential to receive additional shares of AAG Common Stock on each conversion date if the conversion formula provides holders of unsecured claims with shares having a value equal to the allowed amount of their claims;
the satisfaction of certain labor-related claims and the distribution to certain non-management, non-union employees
through the allocation of shares of AAG Common Stock representing 23.6% of the total number of shares of AAG Common Stock ultimately distributed to holders of prepetition general unsecured creditors against the Debtors; and
the satisfaction in full of all secured, priority, and administrative claims against the Debtors in accordance with the requirements of the Bankruptcy Code.
The distributions made to each of the foregoing stakeholders of the Debtors will be adjusted to take into account any reserves made for disputed claims under the Plan. In addition, as a result of the conversion mechanics of the AAG Convertible Preferred Stock, not all shares of AAG Common Stock to be distributed to the foregoing stakeholders can be distributed on the effective date of the Plan. However, the number of shares of AAG Common Stock issued on the effective date of the Plan on account of the labor claims and the existing equity interests in AMR is intended to be the maximum amount possible consistent with their unconditional entitlement to a fixed number of shares under the distribution scheme contemplated by the Plan.
13. Subsequent Events
In connection with preparation of the condensed consolidated financial statements and in accordance U.S. GAAP, the Company evaluated subsequent events after the balance sheet date of September 30, 2013 and determined that no additional disclosure to that presented in this Form 10-Q was necessary.

26


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Third Quarter Developments
During the third quarter of 2013, the Company achieved several key milestones, including US Airways Group stockholder approval of the adoption of the Merger Agreement, acceptance of the Plan by each class of creditors and AMR equity interest holders entitled to vote on the Plan, merger clearance from the European Commission, and the Bankruptcy Court's indication that it will enter the Confirmation Order, conditionally confirming the Plan. See Note 1 and Note 12 to the Condensed Consolidated Financial Statements for information regarding conditions precedent to the effectiveness of the Plan.
Other third quarter highlights include the following:
The Company completed several financing transactions in the third quarter. In August 2013, American amended the Credit Facility to provide total term loan financing of $1.9 billion. In July 2013, American closed its private offering of Series 2013-2A EETC in the aggregate face amount of $1.4 billion. In September 2013, American repaid the Existing Financings and received the proceeds from the Series 2013-2A EETC. See Note 6 to the Condensed Consolidated Financial Statements for further information.
American took delivery of 19 new aircraft (ten A319s, eight B737-800s and one B777-300ER), including the first delivery of the A319, which began service in September.
American announced the expansion of its partnership with LATAM to increase its network connectivity in Brazil and Colombia, extending its lead in the Latin American market.
Other Recent Events
On August 13, 2013, the Antitrust Division of the DOJ commenced the DOJ Action (see Note 1 and Note 12 to the Condensed Consolidated Financial Statements for further information). The Company and US Airways Group will vigorously contest the matter. The trial is scheduled to begin November 25, 2013.
Financial Highlights
The Company recorded a consolidated net income of $290 million in the third quarter of 2013 compared to a net loss of $257 million in the same period last year. The Company’s consolidated net income reflects $151 million of charges to Reorganization Items, Net.
Consolidated passenger revenue increased by $362 million to $6.0 billion for the third quarter of 2013 compared to the same period last year. Cargo and other revenues increased by $32 million to $797 million for the third quarter of 2013 compared to the same period last year. Mainline passenger unit revenues increased by 4.0 percent in the third quarter of 2013 compared to the same period last year, reflecting a 4.6 percent increase in passenger yield year-over-year and a decrease in load factor of approximately 0.5 points compared to the third quarter of 2012.
Operating expenses decreased $262 million during the third quarter primarily due to lower wages, salaries and benefits costs and a decrease in special charges. Wages, salaries and benefits costs include an accrual of $59 million pursuant to the 2013 profit sharing plan, which is expected to be replaced by alternative compensation upon the effective date of the Merger . The Company's operating expenses for the third quarter also include special items and merger related expenses of $15 million (see Note 9 to the Condensed Consolidated Financial Statements for further information) compared to $211 million of special items in the third quarter of 2012.
Charges to Reorganization Items, Net, of $151 million for the third quarter of 2013 consist primarily of estimated claims associated with restructuring aircraft leases and certain special facility revenue bonds, and professional fees. See Note 1 to the Condensed Consolidated Financial Statements for further information.
In conjunction with the early repayment of the Existing Financings (see Note 6 to the Condensed Consolidated Financial Statements for further information), the Company incurred cash charges of $19 million, included in interest expense, and a charge of $54 million, included in Miscellaneous, net, of which $21 million is cash, related to the premium on tender for the Existing Financings, and $33 million is non-cash, related to the write-off of unamortized issuance costs.

27


Contingencies
The Company has certain contingencies resulting from litigation and claims incident to the ordinary course of business. Management believes, after considering a number of factors, including (but not limited to) the information currently available, the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, that the ultimate disposition of the litigation (please see Part II, Item 1, "Legal Proceedings") and claims will not materially affect the Company’s consolidated financial position or results of operations. When appropriate, the Company accrues for these contingencies based on its assessments of the likely outcomes of the related matters. The amounts of these contingencies could increase or decrease in the near term, based on revisions to those assessments. See also Note 2 to the Condensed Consolidated Financial Statements for information on the claims resolution process.
As a result of the Chapter 11 Cases, virtually all prepetition pending litigation against the Company is stayed.

28


LIQUIDITY AND CAPITAL RESOURCES
The matters described herein, to the extent that they relate to future events or expectations, may be significantly affected by the Chapter 11 Cases. Those proceedings will involve, or may result in, various restrictions on our activities, limitations on financing, the need to consult with the Creditors’ Committee and other key stakeholders and to obtain Bankruptcy Court approval for various matters, and uncertainty as to relationships with vendors, suppliers, customers, labor and others with whom we may conduct or seek to conduct business. The Debtors cannot predict the impact, if any, that its Chapter 11 Cases might have on these obligations. For further information regarding the Chapter 11 Cases, see Note 1 to the Condensed Consolidated Financial Statements.
Cash, Short-Term Investments and Restricted Assets
At September 30, 2013, the Company had $6.8 billion in unrestricted cash and short-term investments and $935 million in restricted cash and short-term investments, both at fair value, versus $3.9 billion in unrestricted cash and short-term investments and $850 million in restricted cash and short-term investments at December 31, 2012. Restricted amounts relate primarily to collateral held to support projected workers' compensation obligations and funds held for certain tax obligations.
As of September 30, 2013, approximately $701 million of the Company's unrestricted cash and short-term investments balances were held in foreign bank accounts, of which $608 million is held in Venezuela. As is the case for other international companies, the Company's repatriations from Venezuela have been increasingly delayed. Fluctuations in foreign currencies, including devaluations, cannot be predicted by the Company, can significantly affect the value of our assets located outside the United States and could have a material adverse impact on our financial position.
The Company’s unrestricted short-term investment portfolio consists of a variety of what the Company believes are highly liquid, lower risk instruments including money market funds, government agency investments, repurchase agreements, short-term obligations, corporate obligations, bank notes, certificates of deposit and time deposits. AMR’s objectives for its investment portfolio are (1) the safety of principal, (2) liquidity maintenance, (3) yield maximization and (4) the full investment of all available funds. The Company’s risk management policy further emphasizes superior credit quality (primarily based on short-term ratings by nationally recognized statistical rating organizations) in selecting and maintaining investments in its portfolio and enforces limits on the proportion of funds invested with one issuer, one industry or one type of instrument. The Company regularly assesses the market risks of its portfolio, and believes that its established policies and business practices adequately limit those risks. As a result, the Company does not anticipate any material adverse impact from these risks.
Certain of the Company’s debt financing agreements contain loan to value ratio covenants and require the Company to periodically appraise the collateral. Pursuant to such agreements, if the loan to value ratio exceeds a specified threshold, the Company may be required to subject additional qualifying collateral (which in some cases may include cash collateral) or, in the alternative, to pay down such financing, in whole or in part, with premium (if any). Two such agreements also include covenants that, among other things, limit the ability of the Company and its subsidiaries to merge, consolidate, sell assets, incur additional indebtedness, issue preferred stock, make investments and pay dividends. The Merger is not prohibited by such agreements. In addition, under one such agreement, if American fails to maintain certain collateral ratios of 1.5 to 1.0, American must pay additional interest on the related notes (which bear interest at 7.5% per annum) at the rate of 2% per annum until the collateral coverage ratio equals at least 1.5 to 1.0. See Note 6 to the Condensed Consolidated Financial Statements for further information.
Significant Indebtedness and Future Financing
Our indebtedness and our ability to obtain sufficient financing are significant risks to the Company as discussed more fully in the Risk Factors included under Part II, Item 1A, "Risk Factors".
The Chapter 11 Cases triggered defaults on substantially all debt and lease obligations of the Debtors. However, under section 362 of the Bankruptcy Code, the commencement of a Chapter 11 case automatically stays most creditor actions against the Debtors’ estates. The outcome of the Chapter 11 Cases, which cannot be determined at this time, could further increase the Company’s borrowing or other costs and further restrict the availability of future financing.
The Company currently has financing commitments that, subject to certain conditions, cover all of its scheduled aircraft deliveries through 2016, except 11 Boeing 777-300ER aircraft and 18 Boeing 787 aircraft, which the Company may finance in the future.
In the remainder of 2013, including liabilities subject to compromise, the Company will be contractually required to make approximately $650 million of principal payments on long-term debt and approximately $9 million in principal payments on capital leases, and the Company expects to spend approximately $600 million on capital expenditures, including aircraft commitments.
At emergence from Chapter 11, the Company will be required to or may deem it desirable to settle in cash certain obligations that matured during the Chapter 11 Cases. The Company cannot predict the amount of cash that would be required to settle such

29


obligations, but its present estimate is that such costs will be approximately $1.4 billion. In addition, the Company anticipates that transition costs to integrate the business of the Company and US Airways Group will be approximately $1.2 billion.
During the first nine months of 2013, American closed its private offerings of four tranches of EETCs in the aggregate face amounts of $664 million (Series 2013-1A/B EETC), $120 million (Series 2013-1C EETC) and $1.4 billion (Series 2013-2A EETC)). In addition, American obtained $2.9 billion in secured credit facilities, comprised of a $1.9 billion term loan, as amended in August 2013, and a $1.0 billion revolving credit facility, which are secured by route authorities, slots and foreign gate leaseholds utilized by American in providing its scheduled air carrier services between the United States and South America. As a result of the DOJ Action, it cannot be predicted at this time whether or not the Term Loan Facility and the Revolving Facility will mature early on June 27, 2014 (See Note 6 of the Condensed Consolidated Financial Statements). In June 2013, American remarketed $216 million of Tulsa Municipal Airport Revenue Refunding Bonds Trust Series 2001A, 2001B, and 2000B due June 1, 2035 (Series 2000B) and December 1, 2035 (Series 2001 A&B). In August 2013, bondholders tendered a portion of the Series 2009-1 Pass Through Certificates, the 2009-2 Senior Secured Notes and the Series 2011-2 Pass Through Certificates (together, the Existing Financings). In September 2013, American repaid the outstanding Existing Financings, and received the proceeds from the 2013-2A EETC. See Note 6 to the Condensed Consolidated Financial Statements for further information.
As discussed in Note 1 to the Condensed Consolidated Financial Statements, the Company has been using the benefits afforded by the Bankruptcy Code to restructure the terms of much of its indebtedness and lease obligations. The Company cannot predict at this time the outcome of its efforts to restructure its indebtedness and lease obligations. It is possible that holders of the Company's unsecured indebtedness may lose a portion of their investment depending on the outcome of the Chapter 11 Cases.
See Note 3 to the Condensed Consolidated Financial Statements for further information on the Company's aircraft acquisition commitments, payments, options and financing agreements.
Credit Card Processing and Other Reserves
American has agreements with a number of credit card companies and processors to accept credit cards for the sale of air travel and other services. Under certain of these agreements, the credit card processor may hold back a reserve from American’s credit card receivables following the occurrence of certain events, including the failure of American to maintain certain levels of liquidity (as specified in each agreement).
Under such agreements, the amount of the reserve that may be required generally is based on the processor’s exposure to the Company under the applicable agreement and, in the case a reserve is required because of AMR’s failure to maintain a certain level of liquidity, the amount of such liquidity. As of September 30, 2013, the Company was not required to maintain any reserve under such agreements. If circumstances were to occur that would allow the credit card processor to require the Company to maintain a reserve, the Company’s liquidity would be negatively impacted.
Pension Funding Obligation
The Company is required to make minimum contributions to its defined benefit pension plans under the minimum funding requirements of ERISA, the Pension Funding Equity Act of 2004, the Pension Protection Act of 2006 and the Pension Relief Act of 2010. As a result of the Chapter 11 Cases, AMR contributed $87.6 million to its U.S. defined benefit pension plans during the first nine months of 2013 covering post-petition periods. On October 15, 2013, the Company contributed an additional $16.8 million to its defined benefit pension plans. Prior to emerging from Chapter 11 (see Note 1 to the Condensed Consolidated Financial Statements for further information), AMR and/or its subsidiaries will make all minimum required contributions to each AMR compensation and benefit plan that are required to have been made and were not made prior to emergence. As a result of the Company contributing only the post-petition portion of required contributions, the PBGC filed a lien against certain assets of the Company in 2012.
Cash Flow Activity
At September 30, 2013, the Company had $6.8 billion in unrestricted cash and short-term investments, which is an increase of $2.9 billion from the balance as of December 31, 2012. Net cash provided by operating activities in the nine-month period ended September 30, 2013 was $1.8 billion, as compared to $1.5 billion over the same period in 2012. In addition, as described above, the Company obtained a $1.9 billion term loan, which further increased the Company's liquidity position.
The Company made debt and capital lease payments of $2.1 billion and invested $2.4 billion in capital expenditures in the first nine months of 2013. Capital expenditures primarily consisted of new aircraft and certain aircraft modifications.
Due to the current value of the Company’s derivative contracts, some agreements with counterparties require collateral to be deposited by the counterparty or the Company. As of September 30, 2013 and December 31, 2012, the Company had posted cash

30


collateral of an immaterial amount. As a result of movements in fuel prices, the cash collateral amounts held by the Company or the counterparties to such contracts, as the case may be, can vary significantly.
War-Risk Insurance
The U.S. government has agreed to provide commercial war-risk insurance for U.S. based airlines through December 31, 2013, covering losses to employees, passengers, third parties and aircraft. If the U.S. government were to cease providing such insurance in whole or in part, it is likely that the Company could obtain comparable coverage in the commercial market, but the Company would incur substantially higher premiums and more restrictive terms. There can be no assurance that comparable war-risk coverage will be available in the commercial market. If the Company is unable to obtain adequate war-risk coverage at commercially reasonable rates, the Company would be adversely affected.

31


RESULTS OF OPERATIONS
For the Three Months Ended September 30, 2013 and 2012
REVENUES
The Company’s revenues increased approximately $394 million, or 6.1%, to $6.8 billion in the third quarter of 2013 from the same period last year driven by a stronger yield environment. American’s passenger revenues increased by 7.0 percent, or $344 million, on 2.9 percent higher capacity of 40.1 billion available seat miles (ASMs). American’s passenger load factor decreased 0.5 points while passenger yield increased by 4.6 percent to 15.4 cents. This resulted in an increase in mainline passenger revenue per available seat mile (RASM) of 4.0 percent to 13.1 cents. American derived approximately 60 percent of its passenger revenues from domestic operations and approximately 40 percent from international operations (flights serving international destinations). Additional information regarding American’s domestic and international RASM and capacity is presented:
 
Three Months Ended September 30, 2013
 
RASM
(cents)
 
Y-O-Y
Change
 
ASMs
(billions)
 
Y-O-Y
Change
DOT Domestic
12.8

 
4.6
 %
 
22.9

 
0.8
 %
International
13.6

 
3.1

 
17.2

 
5.8

DOT Latin America
14.8

 
0.5

 
8.2

 
11.0

DOT Atlantic
13.4

 
11.4

 
6.4

 
(2.5
)
DOT Pacific
10.3

 
(11.0
)
 
2.6

 
12.5

In the third quarter of 2013, the airlines providing American with regional feed (Regional Affiliates) included one wholly owned subsidiary, AMR Eagle, and four third-party regional airlines, Chautauqua, ExpressJet, Republic, and SkyWest.
Regional Affiliates’ passenger revenues, which are based on industry standard proration agreements for flights connecting to American flights, increased $18 million, or 2.5 percent, to $766 million as a result of increased traffic. Regional Affiliates’ traffic increased 2.7 percent to 2.7 billion revenue passenger miles (RPMs), on a capacity increase of 2.7 percent to 3.6 billion ASMs, resulting in a passenger load factor of 76.4 percent.
Cargo revenues increased 4.6 percent, or $7 million, to $163 million primarily as a result of an increase in cargo ton miles.
Other revenues increased 4.0 percent, or $25 million, to $634 million due to the growth of the Company's frequent flyer program.
OPERATING EXPENSES
The Company’s total operating expenses decreased 4.1 percent, or $262 million, to $6.1 billion in the third quarter of 2013 compared to the same period last year. American’s mainline operating expenses per ASM decreased 7.4 percent to 13.4 cents. The decrease in operating expense was largely due to lower wages, salaries and benefits costs and a decrease in special and merger related charges.

Operating Expenses (in millions):
Three Months Ended September 30, 2013
 
Change from
2012
 
Percentage
Change
 
Aircraft fuel
$
2,220

 
$
40

 
1.8

 
Wages, salaries and benefits
1,383

 
(237
)
 
(14.6
)
(a)
Regional payments to AMR Eagle
261

 
(27
)
 
(9.4
)
(b)
Other rentals and landing fees
333

 
9

 
2.9

 
Maintenance, materials and repairs
285

 
2

 
0.9

 
Commissions, booking fees and credit card expense
280

 
3

 
1.2

 
Depreciation and amortization
242

 
(10
)
 
(4.2
)
 
Aircraft rentals
186

 
49

 
35.9

(c)
Food service
154

 
15

 
11.0

(d)
Special charges and merger related
15

 
(196
)
 
(92.9
)
(e)
Other operating expenses
774

 
90

 
13.1

(f)
Total operating expenses
$
6,133

 
$
(262
)
 
(4.1
)%
 
(a)
Wages, salaries and benefits decreased primarily as a result of modifications to pension and other post-employment benefits and reductions in certain works groups during 2012, partially offset by charges related to employee profit-sharing. See Note 8 and Note 9 to the Condensed Consolidated Financial Statements for further information, respectively.

32


(b)
Regional payments to AMR Eagle decreased primarily due to more flying by third-party regional carriers.
(c)
Aircraft rental expense increased primarily due to new aircraft deliveries in 2013.
(d)
Food service increased primarily as a result of an increase in passengers boarded and enhanced product offerings.
(e)
Special charges decreased primarily as a result of severance related charges incurred in 2012.
(f)
Other operating expenses increased primarily due to increases in outsourced services and volatility in foreign exchange rates.
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income and expense, capitalized interest and other miscellaneous expenses.
A decrease in short-term investment rates caused a decrease in interest income of $2 million, or 23.6 percent, to $5 million for the third quarter 2013 compared to the same period last year. Interest expense increased $27 million, or 17.3 percent, to $188 million primarily as a result of the post-petition interest expense on unsecured obligations that the debtors agreed to allow pursuant to the Plan.
REORGANIZATION ITEMS, NET
Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred as a direct result of the Chapter 11 Cases. The following table summarizes the components included in reorganization items, net on the Consolidated Statements of Operations for the three months ended September 30, 2013 and September 30, 2012 (in millions):
 
Three Months Ended September 30,
 
2013
 
2012
Pension and postretirement benefits

 
(66
)
Aircraft and facility financing renegotiations and rejections (1)(2)
66

 
133

Professional fees
48

 
51

Other
37

 
10

Total reorganization items, net
$
151

 
$
128

(1)
Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to the rejection or modification of financings related to aircraft. The Debtors record an estimated claim associated with the rejection or modification of a financing when the applicable motion is filed with the Bankruptcy Court to reject or modify such financing and the Debtors believe that it is probable the motion will be approved, and there is sufficient information to estimate the claim. See Note 1 to the Condensed Consolidated Financial Statements, “Special Protection Applicable to Leases and Secured Financing of Aircraft and Aircraft Equipment,” for further information.
(2)
Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to entry of orders treated as unsecured claims with respect to facility agreements supporting certain issuances of special facility revenue bonds. The Debtors record an estimated claim associated with the treatment of claims with respect to facility agreements when the applicable motion is filed with the Bankruptcy Court and the Debtors believe that it is probable that the motion will be approved, and there is sufficient information to estimate the claim. See Note 1 to the Condensed Consolidated Financial Statements, “Rejection of Executory Contracts,” for further information.
Claims related to reorganization items are reflected in liabilities subject to compromise on the Condensed Consolidated Balance Sheet as of September 30, 2013.
INCOME TAX
The Company did not record a net tax provision (benefit) associated with its net earnings or net loss for the three months ended September 30, 2013 or 2012, respectively, due to the Company providing a valuation allowance, as discussed in Note 5 to the Condensed Consolidated Financial Statements.

33


OPERATING STATISTICS
The following table provides statistical information for American and Regional Affiliates for the three months ended September 30, 2013 and 2012.
 
Three Months Ended September 30,
 
2013
 
2012
American Airlines, Inc. Mainline Jet Operations
 
 
 
Revenue passenger miles (millions)
34,078

 
33,302

Available seat miles (millions)
40,082

 
38,955

Cargo ton miles (millions)
451

 
425

Passenger load factor
85.0
%
 
85.5
%
Passenger revenue yield per passenger mile (cents)
15.42

 
14.74

Passenger revenue per available seat mile (cents)
13.11

 
12.60

Cargo revenue yield per ton mile (cents)
36.12

 
36.71

Operating expenses per available seat mile, excluding Regional Affiliates (cents)(1)
13.39

 
14.45

Fuel consumption (gallons, in millions)
643

 
618

Fuel price per gallon (dollars)
3.03

 
3.11

Operating aircraft at period-end
642


603

Regional Affiliates
 
 
 
Revenue passenger miles (millions)
2,721

 
2,649

Available seat miles (millions)
3,562

 
3,468

Passenger load factor
76.4
%
 
76.4
%
(1)
Excludes $766 million and $764 million of expense incurred related to Regional Affiliates in 2013 and 2012, respectively.
Fleet aircraft at September 30, 2013 included:
 
 
Average Seat Capacity
 
Operating Aircraft
 
Non-Operating Aircraft
American Airlines Aircraft:
 
 
Owned
 
Capital Leased
 
Operating Leased
 
Total
 
Average Age
 
In Temporary Storage1
 
Airbus A319
 
128

 

 

 
10

 
10

 

 

 

Boeing 737-800
 
150

 
86

 

 
135

 
221

 
6

 

 
1

Boeing 757-200
 
182

 
78