Special Items

6 Months Ended

Jun. 30, 2015

4. Special Items

Special items, net on the condensed consolidated statements of operations are as follows (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Mainline operating special items, net ^(a)	$	144	$	251	$	447	$	114

^(a)

The 2015 second quarter mainline operating special items totaled a net charge of $144 million, which principally included $221 million of merger integration expenses related to information technology, professional fees, severance, share-based compensation, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. These charges were offset in part by a net $68 million credit for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations. The 2015 six month period mainline operating special items totaled a net charge of $447 million, which principally included $437 million of merger integration expenses as described above and a net $99 million charge related to the Company’s new pilot joint collective bargaining agreement. These charges were offset in part by a net $73 million credit for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations.

The 2014 second quarter mainline operating special items totaled a net charge of $251 million, which principally included $163 million of merger integration expenses related to information technology, professional fees, severance, share-based compensation, re-branding of aircraft and airport facilities, relocation and training as well as a net $38 million charge for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations and $37 million in charges related to the buyout of leases associated with certain aircraft. The 2014 six month period mainline operating special items totaled a net charge of $114 million, which principally included $365 million of merger integration expenses, $40 million in charges primarily related to the buyout of leases associated with certain aircraft and a net $5 million charge for bankruptcy related items, all as described above. These charges were offset in part by a $309 million gain on the sale of Slots at Ronald Reagan Washington National Airport.

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


	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2014		2015			2014
Regional operating special items, net^(a)	$	10		$	2	$	18		$	6
Nonoperating special items, net ^(b)		(11	)		2		(19	)		50
Income tax special items, net ^(c)		7			337		16			345

^(a)	The 2015 and 2014 second quarter and six month period regional operating special items principally related to merger integration expenses.

^(b)

The 2015 second quarter nonoperating special items totaled a net credit of $11 million and primarily included a $22 million gain associated with the sale of an investment, offset in part by $11 million in charges principally related to non-cash write offs of unamortized debt discount and debt issuance costs associated with refinancing the Company’s secured term loan facilities. The 2015 six month period nonoperating special items totaled a net credit of $19 million and principally included the $22 million gain associated with the sale of an investment as described above and a $17 million early debt extinguishment gain associated with the repayment of American’s AAdvantage loan with Citibank. These special credits were offset in part by $20 million in charges principally related to non-cash write offs of unamortized debt discount and debt issuance costs associated with the debt refinancing as described above and the prepayment of certain aircraft financings.

The 2014 second quarter and six month period nonoperating special items were primarily due to non-cash interest accretion of $2 million and $33 million, respectively, on bankruptcy settlement obligations.

^(c)	The 2015 second quarter and six month period tax special items were the result of a non-cash deferred income tax provision related to certain indefinite-lived intangible assets.

During the 2014 second quarter, 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 Company recorded a special $7 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets in the 2014 second quarter. The 2014 six month period included the $330 million non-cash tax provision related to the settlement of fuel hedges discussed above as well as a special $15 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.

American Airlines, Inc. [Member]

Special Items

4. Special Items

Special items, net on the condensed consolidated statements of operations are as follows (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Mainline operating special items, net ^(a)	$	74	$	179	$	272	$	(37	)

^(a)

The 2015 second quarter mainline operating special items totaled a net charge of $74 million, which principally included $137 million of merger integration expenses related to information technology, professional fees, severance, share-based compensation, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. These charges were offset in part by a net $68 million credit for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations. The 2015 six month period mainline operating special items totaled a net charge of $272 million, which principally included $285 million of merger integration expenses as described above and a net $64 million charge related to American’s new pilot joint collective bargaining agreement. These charges were offset in part by a net $73 million credit for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations.

The 2014 second quarter mainline operating special items totaled a net charge of $179 million, which principally included $99 million of merger integration expenses related to information technology, professional fees, severance, share-based compensation, re-branding of aircraft and airport facilities, relocation and training as well as a net $40 million charge for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations and $26 million in charges related to the buyout of leases associated with certain aircraft. The 2014 six month period mainline operating special items totaled a net credit of $37 million, which principally included a $305 million gain on the sale of Slots at Ronald Reagan Washington National Airport and a net $16 million credit for bankruptcy related items as described above. These special credits were offset in part by $234 million of merger integration expenses as described above as well as $29 million in charges primarily related to the buyout of leases associated with certain aircraft.

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


	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015		2014
Regional operating special items, net ^(a)	$	1	$	1		$	4	$	2
Nonoperating special items, net ^(b)		11		(4	)		3		40
Income tax special items, net ^(c)		7		335			15		342

^(a)	The 2015 and 2014 second quarter and six month period regional operating special items principally related to merger integration expenses.

^(b)

The 2015 second quarter nonoperating special items totaled a net charge of $11 million and primarily included non-cash write offs of unamortized debt discount and debt issuance costs associated with refinancing American’s secured term loan facilities. The 2015 six month period nonoperating special items totaled a net charge of $3 million and principally included $20 million in charges primarily related to non-cash write offs of unamortized debt discount and debt issuance costs associated with the debt refinancing as described above and the prepayment of certain aircraft financings, offset in part by a $17 million early debt extinguishment gain associated with the repayment of American’s AAdvantage loan with Citibank.

The 2014 six month period nonoperating special charges of $40 million were primarily due to non-cash interest accretion on bankruptcy settlement obligations.

^(c)	The 2015 second quarter and six month period tax special items were the result of a non-cash deferred income tax provision related to certain indefinite-lived intangible assets.

During the 2014 second quarter, 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, American recorded a special $7 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets in the 2014 second quarter. The 2014 six month period included the $328 million non-cash tax provision related to the settlement of fuel hedges discussed above as well as a special $14 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.