American Airlines 2008 Annual Report Download - page 75

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8. Income Taxes (Continued)
The income tax expense or benefit differed from amounts computed at the statutory federal income tax rate as
follows (in millions):
Year Ended December 31,
2008
2007
2006
Statutory income tax provision expense/(benefit)
$ (725)
$ 176
$ 81
State income tax expense/(benefit),
net of federal tax effect
(49)
10
15
Meal expense
8
9
7
Change in valuation allowance
791
(180)
(124)
Other, net
(25)
(15)
21
Income tax benefit
$ -
$ -
$ -
In addition to the changes in the valuation allowance from operations described in the table above, the valuation
allowance was also impacted by the changes in the components of Accumulated other comprehensive income
(loss), described in Note 12. The total increase (decrease) in the valuation allowance was $2,109 million, ($696)
million, and ($18) million in 2008, 2007, and 2006, 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.
The components of AMR's deferred tax assets and liabilities were (in millions):
December 31,
2008
2007
Deferred tax assets:
Postretirement benefits other than pensions
$ 1,168
$ 1,162
Rent expense
437
487
Alternative minimum tax credit carryforwards
410
413
Operating loss carryforwards
2,268
2,269
Pensions
1,533
405
Frequent flyer obligation
338
308
Gains from lease transactions
98
98
Other
1,056
722
Total deferred tax assets
7,308
5,864
Valuation allowance
(2,734)
(625)
Net deferred tax assets
4,574
5,239
Deferred tax liabilities:
Accelerated depreciation and amortization
(4,400)
(4,960)
Other
(174)
(279)
Total deferred tax liabilities
(4,574)
(5,239)
Net deferred tax liability
$ -
$ -
At December 31, 2008, the Company had available for federal income tax purposes an alternative minimum tax
credit carryforward of approximately $410 million, which is available for an indefinite period, and federal net
operating losses of approximately $6.6 billion for regular tax purposes, which will expire, if unused, beginning in
2022. These net operating losses include an SFAS123(R) unrealized benefit of approximately $649 million related
to the implementation of SFAS 123(R) that will be recorded in equity when realized. The Company had available
for state income tax purposes net operating losses of $3.9 billion, which expire, if unused, in years 2009 through
2027. The amount that will expire in 2009 is $74 million.