American Airlines 2004 Annual Report Download - page 67

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64
8. Income Taxes
The significant components of the income tax benefit for loss before cumulative effect of accounting change were
(in millions):
Year Ended December 31,
2004 2003 2002
Current $ - $ (80) $ (863)
Deferred - - (474)
$ - $ (80) $ (1,337)
The income tax provision/(benefit) includes a federal income tax provision/(benefit) of $(4) million, $(76) million
and $(1,235) million and state and other income tax provision/(benefit) of $4 million, $(4) million and $(102) million
for the years ended December 31, 2004, 2003 and 2002, respectively.
The income tax benefit for loss before cumulative effect of accounting change differed from amounts computed at
the statutory federal income tax rate as follows (in millions):
Year Ended December 31,
2004 2003 2002
Statutory income tax benefit $ (266) $ (458) $ (1,351)
State income tax expense/(benefit),
net of federal tax effect (14) (31) (103)
IRS audit settlement - (80) -
Meal expense 9 11 16
Expiration of foreign tax credits - 9 39
Deferred tax assets not benefited 255 465 50
Other, net 16 4 12
Income tax benefit $ - $ (80) $ (1,337)
The change in valuation allowance in 2004 and 2003 related primarily to net operating loss carryforwards. The
change in valuation allowance in 2002 related to the Company’s uncertainty regarding the realization of the foreign
tax credit carryforwards and state net operating losses
Additionally, as of December 31, 2004 and 2003, the recording of other comprehensive income items, primarily the
minimum pension liability, resulted in a decrease to the deferred tax asset and the related valuation allowance. As
of December 31, 2002, the recording of other comprehensive income items, primarily the minimum pension
liability, resulted in a net deferred tax asset. As a result, a valuation allowance was recorded as a component of
Accumulated other comprehensive income. The total increase in the valuation allowance was $170 million, $293
million, and $363 million in 2004, 2003, and 2002, respectively.
The Company provides a valuation allowance for deferred tax assets when it is more likely than not that some
portion, or all of its deferred tax assets, will not be realized. In assessing the realizability of the deferred tax assets,
management considers whether it is more likely than not that some portion, or all of the deferred tax assets, will be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
(including reversals of deferred tax liabilities) during the periods in which those temporary differences will become
deductible.