Mandatorily Convertible Preferred Stock and Other Bankruptcy Settlement Obligations

3 Months Ended

Mar. 31, 2014

Mandatorily Convertible Preferred Stock and Other Bankruptcy Settlement Obligations

The components of Mandatorily convertible preferred stock and other bankruptcy settlement obligations on the condensed consolidated balance sheets are as follows (in millions):



	March 31, 2014		December 31, 2013
AAG Series A Preferred Stock	$	589	$	3,833
Single-Dip equity obligations	1,259		1,246
Labor-related deemed claim	474		849
Total	$	2,322	$	5,928

The AAG Series A Preferred Stock, while outstanding, voted and participated in accordance with the terms of the underlying Certificate of Designation. One quarter of the shares of AAG Series A Preferred Stock initially issued was mandatorily convertible on each of the 30th, 60th, 90th and 120th days after the Effective Date, subject to additional voluntary conversions. 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 outstanding at March 31, 2014 is included within the "Mandatorily convertible preferred stock and other bankruptcy settlement obligations" line on the Company's condensed consolidated balance sheets. During the three months ended March 31, 2014, 140 million shares of AAG Series A Preferred Stock were converted into 118 million shares of AAG Common Stock in accordance with the Plan. The AAG Series A Preferred Stock obligation was reduced by approximately $3.5 billion, offset in part by an increase in the number of shares of AAG Common Stock issued and expected to be issued to settle the obligation resulting from an increase in the price of AAG's Common Stock exceeding the conversion price cap. As of April 8, 2014, all shares of AAG Series A Preferred Stock had been converted into an aggregate of 141 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, as adjusted, was approximately 1.5 billion. From the Effective Date through March 31, 2014, the Company has made distributions of $680 million in AAG Common Stock and paid approximately $380 million in cash to cover payroll taxes related to the equity distributions. As of March 31, 2014, the remaining liability to certain AMR labor groups and employees of $474 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 March 31, 2014. Increases in the trading price of AAG Common Stock after March 31, 2014 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.

As of March 31, 2014, the Company reduced the Mandatorily convertible preferred stock and other bankruptcy settlement obligations by approximately $41 million, which is included in Special items, net on the condensed consolidated statements of operations, to reflect the estimated fair value of the shares expected to be issued in satisfaction of the outstanding Mandatorily convertible preferred stock and other bankruptcy settlement obligations, measured as if the obligations were settled using the trading price of AAG Common Stock at March 31, 2014.

On April 8, 2014 the Company satisfied all of the AAG Series A Preferred Stock obligations, the Single-Dip equity obligations and the majority of the labor related deemed claim. After the April 8, 2014 distribution date, the Company had an obligation recorded related to the accrued Disputed Claims Reserve of approximately $335 million, which includes an amount expected to be issued to labor assuming the fully accrued Disputed Claims Reserve is allowed by the court and distributed. Allowed claims will receive 30.7553 shares, subject to reduction for expenses of the Disputed Claims Reserve, including tax liabilities, for each $1,000 of allowed claims. Accordingly, increases in the trading price of AAG Common Stock after March 31, 2014 could cause an increase in the value of the Disputed Claims Reserve, and vice-versa.

AA [Member]

Class of Stock [Line Items]

Mandatorily Convertible Preferred Stock and Other Bankruptcy Settlement Obligations

Bankruptcy Settlement Obligations

The components of Bankruptcy settlement obligations on American's condensed consolidated balance sheets are as follows (in millions) and reflect those included in AAG's consolidated financial statements. The settlement of these claims through the issuance of AAG common stock will result in an increase in additional paid-in capital for American.



	March 31, 2014		December 31, 2013
Single-Dip and Double-Dip equity obligations	1,768		4,575
Labor-related deemed claim	474		849
Total	$	2,242	$	5,424

The AAG Series A Preferred Stock, while outstanding, voted and participated in accordance with the terms of the underlying Certificate of Designation. One quarter of the shares of AAG Series A Preferred Stock initially issued was mandatorily convertible on each of the 30th, 60th, 90th and 120th days after the Effective Date, subject to additional voluntary conversions. 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 outstanding at March 31, 2014 is included within the "Bankruptcy settlement obligations" line on American's condensed consolidated balance sheets. During the three months ended March 31, 2014, 123 million shares of AAG Series A Preferred Stock were converted into 103 million shares of AAG Common Stock in accordance with the Plan in settlement of American's bankruptcy settlement obligations. The AAG Series A Preferred Stock obligation for American was reduced by approximately $3.0 billion, offset in part by an increase in the number of shares of AAG Common Stock issued and expected to be issued to settle the obligation resulting from an increase in the price of AAG's Common Stock exceeding the conversion price cap. As of April 8, 2014, all shares of AAG Series A Preferred Stock had been converted into an aggregate of 124 million shares of AAG Common Stock for settlement of American's bankruptcy settlement obligations.

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, as adjusted, was approximately $1.5 billion. From the Effective Date through March 31, 2014, AAG has made distributions of $680 million in AAG Common Stock and paid approximately $380 million in cash to cover payroll taxes related to the equity distributions. As of March 31, 2014, the remaining liability to certain AMR labor groups and employees of $474 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 March 31, 2014. Increases in the trading price of AAG Common Stock after March 31, 2014 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.

As of March 31, 2014, American reduced the Bankruptcy settlement obligations by approximately $65 million, which is included in Special items, net on the condensed consolidated statements of operations, to reflect the estimated fair value of the shares expected to be issued in satisfaction of the outstanding Bankruptcy settlement obligations, measured as if the obligations were settled using the trading price of AAG Common Stock at March 31, 2014.

On April 8, 2014, AAG satisfied all of the AAG Series A Preferred Stock obligations, the Single-Dip equity obligations and the majority of the labor related deemed claim. After the April 8, 2014 distribution date, American had an obligation recorded related to the accrued Disputed Claims Reserve of approximately $335 million, which includes an amount expected to be issued to labor assuming the fully accrued Disputed Claims Reserve is allowed by the court and distributed. Allowed claims will receive 30.7553 shares, subject to reduction for expenses of the Disputed Claims Reserve, including tax liabilities, for each $1,000 of allowed claims. Accordingly, increases in the trading price of AAG Common Stock after March 31, 2014 could cause an increase in the value of the Disputed Claims Reserve, and vice-versa.