American Airlines 2005 Annual Report Download - page 70

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67
8. Income Taxes
The significant components of the income tax benefit were (in millions):
Year Ended December 31,
2005 2004 2003
Current $ - $ - $ (80)
Deferred - - -
$ - $ - $ (80)
There was no net federal or state and other tax provision/(benefit) in 2005. The income tax provision/(benefit)
includes a federal income tax provision/(benefit) of $(4) million and $(76) million and state and other income tax
provision/(benefit) of $4 million and $(4) million for the years ended December 31, 2004 and 2003, respectively.
The income tax benefit differed from amounts computed at the statutory federal income tax rate as follows (in
millions):
Year Ended December 31,
2005 2004 2003
Statutory income tax benefit $ (301) $ (266) $ (458)
State income tax expense/(benefit),
net of federal tax effect
(8)
(14)
(31)
IRS audit settlement - - (80)
Meal expense 9 9 11
Expiration of foreign tax credits - - 9
Deferred tax assets not benefited 298 255 465
Other, net 2 16 4
Income tax benefit $ - $ - $ (80)
The change in valuation allowance in 2005, 2004 and 2003 related primarily to net operating loss carryforwards
and resolution of certain tax contingencies.
The recording of other comprehensive income items, primarily the minimum pension liability, resulted in changes
to the deferred tax asset and the related valuation allowance. The total increase in the valuation allowance was
$506 million, $170 million and $293 million in 2005, 2004 and 2003, 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.