American Airlines 2008 Annual Report Download - page 74

Download and view the complete annual report

Please find page 74 of the 2008 American Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

71
7. Financial Instruments and Risk Management (Continued)
Fair Values of Financial Instruments The fair values of the Company's long-term debt were estimated using
quoted market prices where available. For long-term debt not actively traded, fair values were estimated using
discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
The carrying amounts and estimated fair values of the Company's long-term debt, including current maturities,
were (in millions):
December 31,
2008
2007
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Secured variable and fixed rate
indebtedness
$ 4,783
$ 2,534
$ 4,662
$ 3,896
Enhanced equipment trust
certificates
2,382
1,885
2,482
2,472
6.0% - 8.5% special facility revenue
bonds
1,674
1,001
1,688
1,801
Credit facility agreement
691
545
440
423
4.25% - 4.50 % senior convertible
notes
314
308
619
670
9.0% - 10.20% debentures
213
105
213
178
7.88% - 10.55% notes
211
96
211
195
$ 10,268
$ 6,474
$ 10,315
$ 9,635
8. Income Taxes
On January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48
“Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 prescribes a recognition threshold that a tax
position is required to meet before being recognized in the financial statements and provides guidance on
derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and
transition issues.
The Company has an unrecognized tax benefit of approximately $24 million which decreased $16 million during
the twelve months ended December 31, 2008 due to settlement of the 2001 through 2003 Internal Revenue
Service examination. 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 is not significant at December 31, 2008.
The reconciliation of the beginning and ending amounts of unrecognized tax benefit are (in millions):
2008
2007
Unrecognized Tax Benefit at January 1
$ 40
$ 41
Decreases due to settlements with taxing authority
(16)
(1)
Unrecognized Tax Benefit at December 31
$ 24
$ 40
The Company estimates that the unrecognized tax benefit may change within the next twelve months depending
on the outcome of the pending Internal Revenue Service Appeals case.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The
Company’s 2004 through 2007 tax years are still subject to examination by the Internal Revenue Service. Various
state and foreign jurisdiction tax years remain open to examination as well, though the Company believes that the
effect of any additional assessment(s) will be immaterial to its consolidated financial statements.