Special Items, Net

12 Months Ended

Dec. 31, 2014

6. Special Items, Net

The Company’s special items, net on the consolidated statements of operations are as follows (in millions):


	Year Ended December 31,
	2014		2013		2012
Mainline operating special items, net (1)	$	800	$	559	$	386

(1)

The 2014 mainline operating special items totaled a net charge of $800 million, which principally included $810 million of Merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow Slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, the Company recorded a net charge of $81 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations, $164 million in other special charges, including an $81 million charge to revise prior estimates of certain aircraft residual values, and other spare parts asset impairments, as well as $54 million in charges primarily relating to the buyout of certain aircraft leases. These charges were offset in part by a $309 million gain on the sale of Slots at DCA.

The 2013 mainline operating special items, net included $443 million of primarily Merger related expenses due to the alignment of labor union contracts, professional fees, severance, share-based compensation and fees for US Airways to exit the Star Alliance and its codeshare agreement with United Airlines. In addition, the Company recorded a $107 million charge related to American’s pilot long-term disability obligation, a $43 million charge for workers’ compensation claims and a $33 million aircraft impairment charge. These charges were offset in part by a $67 million gain on the sale of Slots at LaGuardia Airport.

The 2012 mainline operating special items, net consisted of $386 million of severance and related charges and write-off of leasehold improvements on aircraft and airport facilities that were rejected in connection with the Chapter 11 Cases.

See Note 4 for more information on the Merger Agreement.

The following additional amounts are also included in the consolidated statements of operations as follows (in millions):


	Year Ended December 31,
	2014		2013			2012
Other revenue special item, net (1)	$	—	$	(31	)	$	—
Regional operating special items, net		24		8			1
Nonoperating special items, net (2)		132		211			(280	)
Reorganization items, net (3)		—		2,655			2,208
Income tax special items, net (4)		346		(324	)		(569	)

(1)	The 2013 other revenue special item, net included a credit to other revenues related to a change in accounting method resulting from the modification of AAG’s AAdvantage miles agreement with Citibank.

(2)

The 2014 nonoperating special items totaled a net charge of $132 million, which principally included a $43 million charge for Venezuelan foreign currency losses, $56 million of early debt extinguishment costs related to the prepayment of 7.50% senior secured notes and other indebtedness and $33 million of non-cash interest accretion on bankruptcy settlement obligations. See Note 12 for further discussion on Venezuela cash and short-term investments.

The 2013 nonoperating special items, net consisted of interest charges of $138 million to recognize post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to 10.5% secured notes and 7.50% senior secured notes, a $54 million charge related to the premium on tender for existing enhanced equipment trust certificates financings and the write-off of debt issuance costs, and $19 million in charges related to the repayment of existing EETC financings.

The 2012 nonoperating special items, net consisted of a $280 million benefit resulting from a settlement of a commercial dispute.

(3)	In 2013 and 2012, the Company recognized reorganization expenses as a result of the filing of voluntary petitions for relief under Chapter 11. These amounts consisted primarily of estimated allowed claim amounts and professional fees.

(4)

In 2014, income tax special items, net were $346 million. During 2014, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Company’s fuel hedging contracts. In accordance with GAAP, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated. In addition, the 2014 period included a special $16 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.

In 2013 and 2012, income tax special items, net included, respectively, a $538 million and a $569 million non-cash income tax benefit from continuing operations. 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. As a result, the Company recorded a tax benefit on the loss from continuing operations for the year, which was exactly offset by income tax expense on other comprehensive income. However, while the income tax benefit from continuing operations is reported on the income statement, the income tax expense on other comprehensive income is recorded directly to accumulated other comprehensive income (loss), which is a component of stockholders’ equity. Because the income tax expense on other comprehensive income is equal to the income tax benefit from continuing operations, the Company’s year-end net deferred tax position is not impacted by this tax allocation. The 2013 tax benefit was offset in part by a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount the Company believes is more likely than not to be realized.

American Airlines, Inc. [Member]

Special Items, Net

5. Special Items, Net

American’s special items, net on the consolidated statements of operations are as follows (in millions):


	Year Ended December 31,
	2014		2013		2012
Mainline operating special items, net (1)	$	507	$	282	$	386

(1)

The 2014 mainline operating special items totaled a net charge of $507 million, which principally included $527 million of Merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow Slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, American recorded a net charge of $60 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations, $181 million in other special charges, including an $81 million charge to revise prior estimates of certain aircraft residual values, and other spare parts asset impairments, as well as $44 million in charges primarily relating to the buyout of certain aircraft leases. These charges were offset in part by a $305 million gain on the sale of Slots at DCA.

The 2013 mainline operating special items, net included $166 million of primarily Merger related expenses due to the alignment of labor union contracts, professional fees, severance and share-based compensation, a $107 million charge related to American’s pilot long-term disability obligation, a $43 million charge for workers’ compensation claims, and a $33 million aircraft impairment charge. These charges were offset in part by a $67 million gain on the sale of Slots at LaGuardia Airport.

See Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A for information on the Merger Agreement.

The following additional amounts are also included in the consolidated statements of operations as follows (in millions):


	Year Ended December 31,
	2014		2013			2012
Other revenue special item, net (1)	$	—	$	(31	)	$	—
Regional operating special items, net		5		—			—
Nonoperating special items, net (2)		120		121			(280	)
Reorganization items, net (3)		—		2,640			2,179
Income tax special items, net (4)		342		(324	)		(569	)

(1)	The 2013 other revenue special item, net included a credit to other revenues related to a change in accounting method resulting from the modification of American’s AAdvantage miles agreement with Citibank.

(2)

The 2014 nonoperating special items totaled a net charge of $120 million, which principally included a $43 million charge for Venezuelan foreign currency losses, $48 million of early debt extinguishment costs related to the prepayment of 7.50% senior secured notes and other indebtedness and $29 million of non-cash interest accretion on bankruptcy settlement obligations. See Note 9 for further discussion on Venezuela cash and short-term investments.

The 2013 nonoperating special items, net consisted of interest charges of $48 million to recognize post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to 10.5% secured notes and 7.50% senior secured notes, a $54 million charge related to the premium on tender for existing enhanced equipment trust certificates financings and the write-off of debt issuance costs and $19 million in charges related to the repayment of existing EETC financings.

The 2012 nonoperating special items, net totaled a net benefit of $280 million resulting from a settlement of a commercial dispute.

(3)	In 2013 and 2012, American recognized reorganization expenses as a result of the filing of voluntary petitions for relief under Chapter 11. These amounts consisted primarily of estimated allowed claim amounts and professional fees.

(4)

In 2014, income tax special items, net were $342 million. During 2014, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, American recorded a special non-cash tax provision of $328 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholder’s equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of American’s fuel hedging contracts. In accordance with GAAP, American retained the $328 million tax provision in OCI until the last contract was settled or terminated. In addition, the 2014 period included a special $14 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.

In 2013 and 2012, income tax special items, net included, respectively, a $538 million and a $569 million non-cash income tax benefit from continuing operations. American 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. As a result, American recorded a tax benefit on the loss from continuing operations for the year, which was exactly offset by income tax expense on other comprehensive income. However, while the income tax benefit from continuing operations is reported on the income statement, the income tax expense on other comprehensive income is recorded directly to accumulated other comprehensive income (loss), which is a component of stockholder’s equity. Because the income tax expense on other comprehensive income is equal to the income tax benefit from continuing operations, American’s year-end net deferred tax position is not impacted by this tax allocation. The 2013 tax benefit was offset in part by a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount American believes is more likely than not to be realized.

- Definition

The entire disclosure for restructuring and related activities. Description of restructuring activities such as exit and disposal activities, include facts and circumstances leading to the plan, the expected plan completion date, the major types of costs associated with the plan activities, total expected costs, the accrual balance at the end of the period, and the periods over which the remaining accrual will be settled.

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