American Airlines 2010 Annual Report Download - page 75

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8. Income Taxes (Continued)
The significant components of the income tax provision (benefit) were (in millions);
Year Ended December 31,
2010
2009
2008
Current
$ (5)
$ (36)
$ 0
Deferred
(30)
(248)
0
Income tax benefit
$ (35)
$ (284)
$ -
The income tax expense (benefit) differed from amounts computed at the statutory federal income tax rate as
follows (in millions):
Year Ended December 31,
2010
2009
2008
Statutory income tax provision expense/(benefit)
$ (177)
$ (613)
$ (741)
State income tax expense/(benefit),
net of federal tax effect
(1)
(41)
(49)
Meal expense
7
7
8
Change in valuation allowance
121
597
807
Tax benefit resulting from OCI allocation
(248)
-
Other, net
15
14
(25)
Income tax benefit
$ (35)
$ (284)
$ -
The change in the valuation allowance reflects the recording by the Company in 2010 and 2009 of an income tax
expense credit of approximately $30 million and $36 million, respectively, resulting from the Company’s elections
under applicable sections of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of
2010 and the Housing and Economic Recovery Act of 2008 (as extended by the American Recovery and
Reinvestment Act of 2009), allowing corporations to accelerate utilization of certain research and alternative
minimum tax (AMT) credit carryforwards in lieu of applicable bonus depreciation on certain qualifying capital
investments.
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 to the consolidated financial statements. The total increase in the valuation
allowance was $121 million, $135 million, and $2.1 billion in 2010, 2009, and 2008, respectively.
The Company recorded a $248 million non-cash income tax benefit from continuing operations during the fourth
quarter of 2009. Under current accounting rules, the Company is required to consider all items (including items
recorded in other comprehensive income) in determining the amount of tax benefit that results from a loss from
continuing operations and that should be allocated to continuing operations. As a result, the Company recorded a
tax benefit on the loss from continuing operations for the year, which will be exactly offset by income tax expense
on other comprehensive income. However, while the income tax benefit from continuing operations is reported on
the income statement, the income tax expense on other comprehensive income is recorded directly to
Accumulated other comprehensive income, which is a component of stockholders' equity. Because the income
tax expense on other comprehensive income is equal to the income tax benefit from continuing operations, the
Company's year-end net deferred tax position is not impacted by this tax allocation.
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.