American Airlines 2003 Annual Report Download - page 33

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31
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income and expense, interest capitalized and miscellaneous - net.
2003 Compared to 2002 Other expense decreased $66 million, or 12.5 percent, to $464 million due primarily to
the following: Interest income decreased $16 million, or 22.5 percent, to $55 million due primarily to decreases in
interest rates. Interest expense increased $18 million, or 2.6 percent, to $703 million resulting primarily from the
approximately $903 million increase in the Company’s long-term debt, offset by an $84 million reduction in interest
expense related to the agreement reached with the IRS discussed below. Interest capitalized decreased $15
million, or 17.4 percent, to $71 million due primarily to a decrease in purchase deposits for flight equipment.
Miscellaneous-net increased $115 million to $113 million, due primarily to an $80 million gain on the sale of the
Company’s investment in Hotwire and a $70 million gain related to an initial public offering by Orbitz, offset by the
write-down of certain investments held by the Company during the first quarter of 2003.
2002 Compared to 2001 Other expense increased $244 million, or 85.3 percent, to $530 million due primarily to
the following: Interest income decreased $39 million, or 35.5 percent, to $71 million due primarily to decreases in
interest rates. Interest expense increased $147 million, or 27.3 percent, to $685 million resulting primarily from the
increase in the Company’s long-term debt of approximately $2.7 billion. Interest capitalized decreased $58 million,
or 40.3 percent, to $86 million due primarily to a decrease in purchase deposits for flight equipment.
INCOME TAX BENEFIT
2003 The Company did not record a net tax benefit associated with its 2003 losses due to the Company providing
a valuation allowance, as discussed in Note 8 to the consolidated financial statements. Additionally, in 2003, the
Company reached an agreement with the IRS covering tax years 1990 through 1995. As a result of this
agreement, the Company recorded an $80 million tax benefit to reduce previously accrued income tax liabilities
and an $84 million reduction in interest expense to reduce previously accrued interest related to the accrued
income tax liabilities.
2002 The effective tax rate for the year ended December 31, 2002 was impacted by a $57 million charge resulting
from a provision in Congress’ economic stimulus package that changes the period for carrybacks of NOLs. This
change allows the Company to carry back 2001 and 2002 NOLs for five years, rather than two years under the
previous law, allowing the Company to more quickly recover its NOLs. The extended NOL carryback did however
result in the displacement of foreign tax credits taken in prior years. These credits are now expected to expire
before being utilized by the Company, resulting in this charge.