NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.  American files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates.
American’s 2004 through 2013 tax years are still subject to examination by the Internal Revenue Service.
Various state and foreign jurisdiction tax years remain open to examination and American is under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions.
American believes that the effect of additional assessments will be immaterial to its consolidated financial statements.
American has an unrecognized tax benefit of approximately $5 million, which did not change during the twelve months ended December 31, 2014.
Changes in the unrecognized tax benefit have no impact on the effective tax rate due to the existence of the valuation allowance.
Accrued interest on tax positions is recorded as a component of interest expense but was not significant at December 31, 2014.
The reconciliation of the beginning and ending amounts of unrecognized tax benefit are (in millions):
## Table 0 ##
American estimates that the unrecognized tax benefit will be realized within the next twelve months.8.
Risk Management and Financial Instruments American’s economic prospects are heavily dependent upon two variables it cannot control: the health of the economy and the price of fuel.
Due to the discretionary nature of business and leisure travel spending, airline industry revenues are heavily influenced by the condition of the U. S.  economy and economies in other regions of the world.
Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased passenger demand for air travel and changes in booking practices, both of which in turn have had, and may have in the future, a strong negative effect on American’s revenues.
In addition, during challenging economic times, actions by our competitors to increase their revenues can have an adverse impact on American’s revenues.
American’s operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in American’s business.
Because of the amount of fuel needed to operate American’s business, even a relatively small increase in the price of fuel can have a material adverse aggregate effect on American’s operating results and liquidity.
Jet fuel market prices have fluctuated substantially over the past several years and prices continued to be volatile in 2014.
These factors could impact American’s results of operations, financial performance and liquidity.
(a) Fuel Price Risk Management During the second quarter of 2014, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014.
American has not entered into any transactions to hedge its fuel consumption since December 9, 2013 and, accordingly, as of December 31, 2014, American did not have any fuel hedging contracts outstanding.
As such, and assuming American does not enter into any future transactions to hedge its fuel consumption, American will continue to be fully exposed to fluctuations in fuel prices.
American’s current policy is not to enter into transactions to hedge its fuel consumption, although American reviews that policy from time to time based on market conditions and other factors.
Revenues for Gibraltar Life increased $243 million, from $2.695 billion in 2003 to $2.938 billion in 2004, including a $200 million favorable impact of currency fluctuations.
Excluding the impact of the currency fluctuations, revenues increased $43 million, from $2.888 billion in 2003 to $2.931 billion in 2004, due primarily to increased premiums from single pay contracts of $125 million for which there was a corresponding increase in policyholders’ benefits.
Sales of single pay business in 2003 consisted primarily of endowment contracts, for which premiums collected from customers are not included in reported revenues.
Excluding the effect of single pay contracts, revenue declined due to a reduction in the in force business.
Benefits and Expenses 2005 to 2004 Annual Comparison.
Benefits and expenses, as shown in the table above under “—Operating Results,” increased $860 million, from $5.425 billion in 2004 to $6.285 billion in 2005, including benefits and expenses of our Aoba Life business, and a net unfavorable impact of $52 million related to currency fluctuations.
Excluding the impact of currency fluctuations, benefits and expenses increased $808 million, from $5.448 billion in 2004 to $6.256 billion in 2005.
On the same basis, benefits and expenses of our Japanese Life Planner operation increased $608 million from 2004 to 2005, including the benefits and expenses from our Aoba Life business.
Benefits and expenses from our Korean operation increased $105 million, from $707 million in 2004 to $812 million in 2005.
The increases in benefits and expenses reflect increases in policyholders’ benefits, including changes in reserves, resulting from the aging of business in force and a greater volume of business in force, which was driven by new sales and strong persistency, as well as the contribution of the acquired Aoba Life business in Japan.
A $5 million reduction in the liability for Japanese guaranty fund assessments and a $5 million reduction in reserves due to refinements relative to recently introduced products of our Korean business during 2005 were partial offsets to the growth in benefits and expenses.
Gibraltar Life’s benefits and expenses increased $75 million, from $2.536 billion in 2004 to $2.611 billion in 2005, including an $8 million favorable impact of currency fluctuations.
Excluding the impact of the currency fluctuations, benefits and expenses increased $83 million, from $2.502 billion in 2004 to $2.585 billion in 2005, with an increase corresponding to the increased premiums from single pay contracts discussed above partially offset by expected attrition of older business and a reduction in our liability for guaranty fund assessments of approximately $10 million, together with a benefit of $9 million from refinements in reserves for a block of business during the 2005 period.
Benefits and expenses in the prior year period were reduced by $11 million from the extinguishment of a liability that was established in connection with Gibraltar Life’s reorganization in 2001.2004 to 2003 Annual Comparison.
Benefits and expenses increased $663 million, from $4.762 billion in 2003 to $5.425 billion in 2004, including an unfavorable impact of $316 million related to currency fluctuations.
Excluding the impact of currency fluctuations, benefits and expenses increased $347 million reflecting a $318 million increase in our international insurance operations other than Gibraltar Life, and a $29 million increase from Gibraltar Life.
On this same basis, benefits and expenses of our Japanese Life Planner operation increased $125 million from 2003 to 2004, but reflect lower policyholders’ benefits, including changes in reserves, in 2004 related to the single pay contracts noted above.
Benefits and expenses from our Korean operation increased $146 million from $561 million in 2003 to $707 million in 2004.
The increase in benefits and expenses in both operations, excluding the effect of the single pay contracts, reflects an increase in policyholders’ benefits, including changes in reserves, resulting from the aging of business in force and a greater volume of business in force, which was driven by new sales and continued strong persistency.
Gibraltar Life’s benefits and expenses increased $211 million, from $2.325 billion in 2003 to $2.536 billion in 2004, including an increase of $182 million related to currency fluctuations.
Excluding the impact of the currency fluctuations, benefits and expenses increased $29 million from 2003 to 2004, reflecting an increase in policyholders’ benefits, including changes in reserves associated with single pay contracts and the greater increases in policy reserves, in 2004, associated with a lower than anticipated level of surrenders.
In addition, benefits and expenses for 2003 include a $9 million benefit from decreases in our estimated liability for guaranty fund assessments for which 2004 includes only a minimal benefit.
These increases were partially offset by a lower level of policyholders’ benefits due primarily to a reduction in the in force business and the reduction in reserves related to the extinguishment of a liability established in connection with Gibraltar Life’s reorganization as well as a more favorable level of general and administrative expenses compared to 2003.
Sales Results In managing our international insurance business, we analyze new annualized premiums, which do not correspond to revenues under GAAP, as well as revenues, because new annualized premiums measure the current sales performance of the segment, while revenues reflect the renewal persistency and aging of in force policies written in prior years and net investment income, in addition to current sales.
New annualized premiums on an actual and constant exchange rate basis are as follows for the periods indicated.
## Table 1 ##
connection with the acquisition of PISC, related to the provision of asset management and brokerage services, which agreement extends until February 27, 2009.
During 2004, PISC contributed $53 million of adjusted operating income from its initial ten months of operation, including $20 million of fee revenue from the Korean government under the agreement discussed above.2004 to 2003 Annual Comparison.
Adjusted operating income increased $96 million, from a loss of $10 million in 2003 to income of $86 million in 2004, primarily reflecting earnings of $53 million attributable to our acquisition of PISC in the first quarter of 2004, as discussed above.
Also contributing to the increase in adjusted operating income were improved results from our global derivatives businesses, as well as the negative effect in 2003 of a $34 million charge to write off a receivable related to an investment in Korea.
Revenues 2005 to 2004 Annual Comparison.
Revenues, as shown in the table above under “—Operating Results,” increased $39 million, from $447 million in 2004 to $486 million in 2005 primarily due to the results of PISC, as discussed above.2004 to 2003 Annual Comparison.
Revenues increased $207 million, from $240 million in 2003 to $447 million in 2004, primarily due to our acquisition of PISC in the first quarter of 2004.
Also contributing to the increase were higher revenues from our global derivatives businesses, as well as the negative effect in 2003 of a $34 million charge to write off a receivable related to an investment in Korea.
Expenses 2005 to 2004 Annual Comparison.
Expenses, as shown in the table above under “—Operating Results,” increased $15 million, from $361 million in 2004 to $376 million in 2005 primarily due to the results of PISC, as discussed above.2004 to 2003 Annual Comparison.
Expenses increased $111 million, from $250 million in 2003 to $361 million in 2004, primarily due to our acquisition of PISC in the first quarter of 2004.
Corporate and Other Corporate and Other includes corporate operations, after allocations to our business segments and real estate and relocation services.
Corporate operations consist primarily of: (1) corporate-level income and expenses, after allocations to any of our business segments, including income from our qualified pension plans and investment returns on capital that is not deployed in any of our segments; (2) returns from investments that we do not allocate to any of our business segments, including a debt-financed investment portfolio, as well as the impact of transactions with other segments; and (3) businesses that we have placed in wind-down status but have not divested.
## Table 2 ##
(1) Includes consolidating adjustments.
(2) See “—Realized Investment Gains and General Account Investments—Realized Investment Gains” for a discussion of these items.
(3) See “—Divested Businesses” for a discussion of the results of our divested businesses.2005 to 2004 Annual Comparison.
Adjusted operating income increased $31 million, from $167 million in 2004 to $198 million in 2005.
Adjusted operating income from corporate operations increased $27 million, from $66 million in 2004 to $93 million in 2005.
Costs incurred for expense reduction initiatives declined from $61 million in 2004 to $11 million in 2005.
Results for 2005 also include the reversal of $30 million of amortization of deferred policy acquisition costs recorded in prior periods.
Corporate operations included $40 million of costs in 2005 from retained obligations relating to policyholders with whom we had previously agreed to provide insurance for reduced or no premium in accordance with contractual settlements related to prior individual life sales practices remediation, as compared to $68 million in 2004.
The costs in 2004 include the impact of a reduction in our policy dividend scale.
Our obligations under these settlements relate to both variable life and traditional dividend-paying policies that were issued before our demutualization.
A reduction in the 2005 dividend scale resulted in an increase in the obligation for net premiums on traditional dividend-paying policies to be absorbed by us under these settlements, which was recognized within 2004 Corporate and Other results.
Corporate operations includes income from our qualified pension plan of $411 million in 2005, a decrease of $55 million from $466 million in 2004.
The decline includes the impact of a reduction in the expected return on plan assets from 8.75% for 2004 to 8.50% for 2005.
Corporate operations investment income, net of interest expense, decreased $24 million, reflecting increased borrowings.
For purposes of calculating pension income from our own qualified pension plan for the year ended December 31, 2006, we will apply a discount rate of 5.50% and we will reduce the expected return on plan assets to 8.00% from 8.50% in 2005.
In addition, the assumed rate of increase in compensation levels will remain unchanged at 4.50%.
We determined our expected return on plan assets based upon the
The following table sets forth our public fixed maturities included in our trading account assets supporting insurance liabilities portfolio by NAIC rating as of the dates indicated.
## Table 3 ##
(1) See “—Fixed Maturity Securities Credit Quality” above for a discussion on NAIC designations.
(2) Reflects equivalent ratings for investments of the international insurance operations that are not rated by U. S.  insurance regulatory authorities.
(3) Amounts are reported in “Asset management fees and other income.
” The following table sets forth our private fixed maturities included in our trading account assets supporting insurance liabilities portfolio by NAIC rating as of the dates indicated.
## Table 4 ##
(1) See “—Fixed Maturity Securities Credit Quality” above for a discussion on NAIC designations.
(2) Reflects equivalent ratings for investments of the international insurance operations that are not rated by U. S.  insurance regulatory authorities.
(3) Amounts are reported in “Asset management fees and other income.
” Commercial Loans Investment Mix We originate domestic commercial mortgages using dedicated investment staff and a network of independent companies through our various regional offices across the country.
All loans are underwritten consistently to our standards using a proprietary quality rating system that has been developed from our experience in real estate and mortgage lending.
Our loan portfolio strategy emphasizes diversification by property type and geographic location.
Consumer loans are loans extended by Gibraltar Life to individuals for financing purchases of consumer goods and services and are guaranteed by third party guarantor companies.
Ongoing surveillance of the portfolio is performed and loans are placed on watch list status based on a predefined set of criteria.
We place loans on early warning status in cases where we detect that the physical condition of the property, the financial situation of the borrower or tenant or other market factors could lead to a loss of principal or interest.
We classify loans as closely monitored when there is a collateral deficiency or other credit events that will lead to a potential loss of principal or interest.
Loans not in good standing are those
We believe that the cash flows from our insurance, annuity and guaranteed products operations are adequate to satisfy the current liquidity requirements of these operations, including under reasonably foreseeable stress scenarios.
The continued adequacy of this liquidity will depend upon factors such as future securities market conditions, changes in interest rate levels and policyholder perceptions of our financial strength, each of which could lead to reduced cash inflows or increased cash outflows.
Our domestic insurance operations’ cash flows from investment activities result from repayments of principal, proceeds from maturities and sales of invested assets and investment income, net of amounts reinvested.
The primary liquidity risks with respect to these cash flows are the risk of default by debtors, our counterparties’ willingness to extend repurchase and/or securities lending arrangements, and market volatility.
We closely manage these risks through our credit risk management process and regular monitoring of our liquidity position.
In managing the liquidity of our domestic insurance operations, we also consider the risk of policyholder and contractholder withdrawals of funds earlier than our assumptions in selecting assets to support these contractual obligations.
We use surrender charges and other contract provisions to mitigate the extent, timing and profitability impact of withdrawals of funds by customers from annuity contracts and deposit liabilities.
The following table sets forth withdrawal characteristics of our general account annuity reserves and deposit liabilities (based on statutory liability values) as of the dates indicated.

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Unrecognized tax benefit at January 1</td><td>$5</td><td>$5</td></tr><tr><td>No activity</td><td>—</td><td>—</td></tr><tr><td>Unrecognized tax benefit at December 31</td><td>$5</td><td>$5</td></tr></table>
<table><tr><td></td><td colspan="3"> Year ended December 31, </td></tr><tr><td></td><td> 2005 </td><td> 2004 </td><td> 2003 </td></tr><tr><td></td><td colspan="3"> (in millions)</td></tr><tr><td> New annualized premiums:</td><td></td><td></td><td></td></tr><tr><td>On an actual exchange rate basis:</td><td></td><td></td><td></td></tr><tr><td>International Insurance, excluding Gibraltar Life</td><td>$856</td><td>$668</td><td>$608</td></tr><tr><td>Gibraltar Life</td><td>323</td><td>277</td><td>296</td></tr><tr><td>Total</td><td>$1,179</td><td>$945</td><td>$904</td></tr><tr><td>On a constant exchange rate basis:</td><td></td><td></td><td></td></tr><tr><td>International Insurance, excluding Gibraltar Life</td><td>$856</td><td>$684</td><td>$658</td></tr><tr><td>Gibraltar Life</td><td>319</td><td>274</td><td>315</td></tr><tr><td>Total</td><td>$1,175</td><td>$958</td><td>$973</td></tr></table>
<table><tr><td></td><td colspan="3">Year ended December 31,</td></tr><tr><td></td><td>2005</td><td>2004</td><td>2003</td></tr><tr><td></td><td colspan="3">(in millions)</td></tr><tr><td> Operating Results:</td><td></td><td></td><td></td></tr><tr><td>Corporate Operations-1</td><td>$93</td><td>$66</td><td>$21</td></tr><tr><td>Real Estate and Relocation Services</td><td>105</td><td>101</td><td>63</td></tr><tr><td>Adjusted operating income</td><td>198</td><td>167</td><td>84</td></tr><tr><td>Realized investment gains (losses), net, and related adjustments(2)</td><td>362</td><td>-34</td><td>-36</td></tr><tr><td>Divested businesses-3</td><td>-50</td><td>-33</td><td>-158</td></tr><tr><td>Income (loss) from continuing operations before income taxes, extraordinary gain on acquisition and cumulative effect of accountingchange</td><td>$510</td><td>$100</td><td>$-110</td></tr></table>
<table><tr><td> -1(2)</td><td></td><td colspan="4"> December 31, 2005 </td><td colspan="4"> December 31, 2004 </td></tr><tr><td> NAIC Designation </td><td> Rating Agency Equivalent</td><td> Amortized Cost </td><td> Gross Unrealized Gains-3 </td><td> Gross Unrealized Losses-3 </td><td> Fair Value </td><td> Amortized Cost </td><td> Gross Unrealized Gains-3 </td><td> Gross Unrealized Losses-3 </td><td> Fair Value </td></tr><tr><td></td><td></td><td colspan="8"> (in millions)</td></tr><tr><td>1</td><td>Aaa, Aa, A</td><td>$6,990</td><td>$14</td><td>$170</td><td>$6,834</td><td>$4,929</td><td>$23</td><td>$67</td><td>$4,886</td></tr><tr><td>2</td><td>Baa</td><td>2,049</td><td>3</td><td>65</td><td>1,987</td><td>2,454</td><td>9</td><td>31</td><td>2,431</td></tr><tr><td></td><td>Subtotal Investment Grade</td><td>9,039</td><td>17</td><td>235</td><td>8,821</td><td>7,383</td><td>32</td><td>98</td><td>7,317</td></tr><tr><td>3</td><td>Ba</td><td>42</td><td>—</td><td>5</td><td>37</td><td>16</td><td>—</td><td>—</td><td>16</td></tr><tr><td>4</td><td>B</td><td>2</td><td>—</td><td>—</td><td>2</td><td>14</td><td>1</td><td>—</td><td>15</td></tr><tr><td>5</td><td>C and lower</td><td>2</td><td>—</td><td>—</td><td>2</td><td>2</td><td>—</td><td>—</td><td>2</td></tr><tr><td>6</td><td>In or near default</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td></td><td>Subtotal Below InvestmentGrade</td><td>46</td><td>—</td><td>5</td><td>41</td><td>32</td><td>1</td><td>—</td><td>33</td></tr><tr><td></td><td>Total Public Trading Account Assets Supporting Insurance Liabilities</td><td>$9,085</td><td>$17</td><td>$240</td><td>$8,862</td><td>$7,415</td><td>$33</td><td>$98</td><td>$7,350</td></tr></table>
<table><tr><td> -1(2)</td><td></td><td colspan="4"> December 31, 2005 </td><td colspan="4"> December 31, 2004 </td></tr><tr><td> NAIC Designation </td><td> Rating Agency Equivalent</td><td> Amortized Cost </td><td> Gross Unrealized Gains </td><td> Gross Unrealized Losses </td><td> Fair Value </td><td> Amortized Cost </td><td> Gross Unrealized Gains </td><td> Gross Unrealized Losses </td><td> Fair Value </td></tr><tr><td></td><td></td><td colspan="8"> (in millions)</td></tr><tr><td>1</td><td>Aaa, Aa, A</td><td>$1,087</td><td>$2</td><td>$28</td><td>$1,061</td><td>$1,168</td><td>$3</td><td>$24</td><td>$1,147</td></tr><tr><td>2</td><td>Baa</td><td>2,564</td><td>10</td><td>66</td><td>2,508</td><td>2,852</td><td>20</td><td>51</td><td>2,821</td></tr><tr><td></td><td>Subtotal Investment Grade</td><td>3,651</td><td>12</td><td>94</td><td>3,569</td><td>4,020</td><td>23</td><td>75</td><td>3,968</td></tr><tr><td>3</td><td>Ba</td><td>276</td><td>2</td><td>9</td><td>269</td><td>165</td><td>4</td><td>1</td><td>168</td></tr><tr><td>4</td><td>B</td><td>31</td><td>—</td><td>1</td><td>30</td><td>45</td><td>2</td><td>—</td><td>47</td></tr><tr><td>5</td><td>C and lower</td><td>99</td><td>—</td><td>1</td><td>98</td><td>22</td><td>1</td><td>1</td><td>22</td></tr><tr><td>6</td><td>In or near default</td><td>8</td><td>5</td><td>—</td><td>13</td><td>8</td><td>3</td><td>—</td><td>11</td></tr><tr><td></td><td>Subtotal Below Investment Grade</td><td>414</td><td>7</td><td>11</td><td>410</td><td>240</td><td>10</td><td>2</td><td>248</td></tr><tr><td></td><td>Total Private Trading Account Assets Supporting Insurance Liabilities</td><td>$4,065</td><td>$19</td><td>$105</td><td>$3,979</td><td>$4,260</td><td>$33</td><td>$77</td><td>$4,216</td></tr></table>

Question: How many B exceed the average of December 31, 2004 in 2004 for Amortized Cost?