Mandatorily Convertible Preferred Stock and Other Bankruptcy Settlement Obligations

12 Months Ended

Dec. 31, 2013

Mandatorily Convertible Preferred Stock and Other Bankruptcy Settlement Obligations

As of December 31, 2013, the components of Mandatorily convertible preferred stock and other bankruptcy settlement obligations on the Consolidated Balance Sheet are as follows (in millions):



AAG Series A Preferred Stock	$	3,833
Single-dip equity obligations	1,246
Labor-related deemed claim	849
Total	$	5,928

The AAG Series A Preferred Stock, while outstanding, votes and participates in accordance with the terms of the underlying Certificate of Designation. One quarter of the shares of AAG Series A Preferred Stock initially issued is mandatorily convertible on each of the 30^th, 60^th, 90^th and 120^th days after the Effective Date. In addition, subject to certain limitations, holders of AAG Series A Preferred Stock may elect to convert up to an additional 10 million shares of AAG Series A Preferred Stock during each 30-day period following the Effective Date thereby reducing the number of shares to be converted on the 120^th day after the Effective Date. The initial stated value of each share of AAG Series A Preferred Stock is $25.00 and accrues dividends at 6.25% per annum, calculated daily, while outstanding. Additionally, AAG Series A Preferred Stock converts to AAG Common Stock based upon the volume weighted average price of the shares of AAG Common Stock on the five trading days immediately preceding the conversion date, at a 3.5% fixed discount, subject to a conversion price floor of $10.875 per share and a conversion price cap of $33.8080 per share, below or above which the conversion rate remains fixed. AAG Series A Preferred Stock embodies an unconditional obligation to transfer a variable number of shares based predominately on a fixed monetary amount known at inception, and, as such, it is not treated as equity, but rather as a liability until such time that it is converted to AAG Common Stock. Accordingly, AAG Series A Preferred Stock outstanding at December 31, 2013 is included within the "Mandatorily convertible preferred stock and other bankruptcy settlement obligations" line on the Company's Consolidated Balance Sheets. Upon conversion of any remaining AAG Series A Preferred Stock on the 120^th day after the Effective Date, all AAG Series A Preferred Stock will have been converted to AAG Common Stock and no AAG Series A Preferred Stock will then remain outstanding. As of February 19, 2014, approximately 107 million shares of AAG Series A Preferred Stock had been converted into an aggregate of 95 million shares of AAG Common Stock.

The Company's Single-Dip equity obligations, while outstanding, do not vote or participate in accordance with the terms of the Plan. These equity contract obligations, representing the amount of total Single-Dip unsecured creditor obligations not satisfied through the issuance of AAG Series A Preferred Stock at the Effective Date, represent an unconditional obligation to transfer a variable number of shares based predominantly on a fixed monetary amount known at inception, and, as such, are not treated as equity, but rather as liabilities until the 120^th day after emergence. At the 120^th day after emergence, the Company will issue a variable amount of AAG Common Stock necessary to satisfy the obligation amount at emergence, plus accrued dividends of 12% per annum, calculated daily, through the 120^th day after emergence, based on the volume weighted average price of the shares of AAG Common Stock at a 3.5% discount, as specified in the Plan and, subject to there being a sufficient number of shares remaining for issuance to unsecured creditors under the Plan.

In exchange for employees' contributions to the successful reorganization of the Company, including agreeing to reductions in pay and benefits, the Company agreed in the Plan to provide each employee group a deemed claim which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. The fair value based on the expected number of shares to be distributed to satisfy this deemed claim was approximately $1.7 billion. On the Effective Date, the Company made an initial distribution of $595 million in common stock and American paid approximately $300 million in cash to cover payroll taxes related to the equity distribution. As of December 31, 2013, the remaining liability to certain AMR labor groups and employees of $849 million is based upon the estimated fair value of the shares expected to be issued in satisfaction of such obligation, measured as if the obligation were settled using the trading price of AAG Common Stock at December 31, 2013. Increases in the trading price of AAG Common Stock after December 31, 2013, could cause a decrease in the fair value measurement of the remaining obligation, and vice-versa. The Company will record this obligation at fair value primarily through the 120^th day after emergence, at which time the obligation will be materially settled.

AA [Member]

Class of Stock [Line Items]

Mandatorily Convertible Preferred Stock and Other Bankruptcy Settlement Obligations

Bankruptcy Settlement Obligations

As of December 31, 2013, the components of "Claims and other bankruptcy settlement obligations" on American's Consolidated Balance Sheet are as follows (in millions):



AAG Series A Preferred Stock	$	3,329
Single-dip equity obligations	1,246
Labor-related deemed claim	849
Total	$	5,424

As a mechanism for satisfying Double-Dip Unsecured Claims and a portion of Single-Dip Unsecured Claims, the Plan of Reorganization provided that such claimholders receive the mandatorily convertible AAG Series A Preferred Stock. AAG's Series A Preferred Stock, while outstanding, votes and participates in accordance with the terms of the underlying Certificate of Designation. One quarter of the shares of AAG Series A Preferred Stock is mandatorily convertible on each of the 30^th, 60^th, 90^th and 120^th days after the Effective Date. In addition, subject to certain limitations, holders of AAG Series A Preferred Stock may elect to convert up to 10 million shares of AAG Series A Preferred Stock during each 30-day period following the Effective Date thereby reducing the number of AAG Series A Preferred Stock to be converted on the 120^th day after the Effective Date. The initial stated value of each share of AAG Series A Preferred Stock is $25.00 and accrues dividends at 6.25% per annum, calculated daily, while outstanding. Additionally, AAG Series A Preferred Stock converts to AAG Common Stock based upon the volume weighted average price of the shares of AAG Common Stock on the five trading days immediately preceding the conversion date, at a 3.5% fixed discount, subject to a conversion price floor of $10.875 per share and a conversion price cap of $33.8080 per share, below or above which the conversion rate remains fixed. AAG Series A Preferred Stock embodies an unconditional obligation to transfer a variable number of shares based predominately on a fixed monetary amount known at inception, and, as such, it is not treated as equity of AAG, but rather as a liability until such time that it is converted to AAG Common Stock. Accordingly, American has reflected the amount of its claims satisfied through the issuance of the AAG Series A Preferred Stock as a liability included within the "Bankruptcy settlement obligations" line on American’s Consolidated Balance Sheets and will reflect such obligations as a liability until such time where they are satisfied through the issuance of AAG Common Stock. Upon the satisfaction of these bankruptcy settlement obligations with AAG Common Stock, the Company will record an increase in additional paid-in capital through an intercompany equity transfer while derecognizing the related bankruptcy settlement obligation at that time. As of February 19, 2014, approximately 107 million shares of AAG Series A Preferred Stock had been converted into an aggregate of 95 million shares of AAG Common Stock.

The Single-Dip equity obligations, while outstanding, do not vote or participate in accordance with the terms of the Plan. These equity contract obligations, representing the amount of total Single-Dip unsecured creditor obligations not satisfied through the issuance of AAG Series A Preferred Stock at the Effective Date, represent an unconditional obligation to transfer a variable number of shares of AAG Common Stock based predominantly on a fixed monetary amount known at inception, and, as such, are not treated as equity, but rather as liabilities until the 120^th day after emergence. At the 120^th day after emergence, AAG will issue a variable amount of AAG Common Stock necessary to satisfy the obligation amount at emergence, plus accrued dividends of 12% per annum, calculated daily, through the 120^th day after emergence, based on the volume weighted average price of the shares of AAG Common Stock, at a 3.5% discount, as specified in the Plan and subject to there being a sufficient number of shares remaining for issuance to unsecured creditors under the Plan.

In exchange for employees' contributions to the successful reorganization of AAG, including agreeing to reductions in pay and benefits, AAG and American agreed in the Plan to provide each employee group a deemed claim which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. The fair value based on the expected number of shares to be distributed to satisfy this deemed claim was approximately $1.7 billion. On the Effective Date, AAG made an initial distribution of $595 million in common stock and American paid approximately $300 million in cash to cover payroll taxes related to the equity distribution. As of December 31, 2013, the remaining liability to certain American labor groups and employees of $849 million is based upon the estimated fair value of the shares of AAG Common Stock expected to be issued in satisfaction of such obligation, measured as if the obligation were settled using the trading price of AAG Common Stock at December 31, 2013. Increases in the trading price of AAG Common Stock after December 31, 2013, could cause a decrease in the fair value measurement of the remaining obligation, and vice-versa. American will record this obligation at fair value primarily through the 120^th day after emergence, at which time the obligation will be materially settled.