American Airlines 2006 Annual Report Download - page 71
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67
8. Income Taxes
The income tax benefit differed from amounts computed at the statutory federal income tax rate as follows (in
millions):
Year Ended December 31,
2006 2005 2004
Statutory income tax provision (benefit) $ 81 $ (301) $ (266)
State income tax expense/(benefit),
net of federal tax effect
15
(8)
(14)
Meal expense 7 9 9
Expiration of foreign tax credits - - -
Change in valuation allowance (124) 298 255
Other, net 21 2 16
Income tax benefit $ - $ - $ -
The change in valuation allowance in 2006, 2005 and 2004 related primarily to net operating loss carryforwards,
an unrealized benefit related to the implementation of SFAS 123(R) and the resolution of certain tax
contingencies.
The recording of other comprehensive income items, primarily the pension liability, resulted in changes to the
deferred tax asset and the related valuation allowance. The total increase (decrease) in the valuation allowance
was $(18) million, $506 million and $170 million in 2006, 2005 and 2004, 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.