Airtran 2002 Annual Report Download - page 45

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12. Income Taxes
The components of our provision for income taxes are as follows (in thousands):
2002 2001 2000
Current provision (benefit):
Federal $(786) $ 858 $–
State –130 –
Total current provision (benefit) (786) 988 –
Deferred provision:
Federal –1,896 –
State –356 –
Total deferred provision –2,252 –
Provision (Benefit) for income taxes $(786) $3,240 $–
A reconciliation of taxes computed at the statutory federal tax rate on income (loss) before income taxes to the provision for income taxes is as follows (in thousands):
2002 2001 2000
Tax computed at federal statutory rate $ 3,761 $ 399 $ 16,603
State income tax, net of federal tax benefit 329 303 1,469
Goodwill –481 483
Debt discount amortization 10 1,083 –
Benefit of preacquisition net operating loss carryforwards –2,252 –
Other 65 125 54
Valuation reserve, including the effect of changes to prior year deferred tax assets (4,951) (1,403) (18,609)
$ (786) $ 3,240 $ –
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of our deferred tax liabilities and assets are as follows (in thousands):
As of December 31,
2002 2001
Deferred tax liabilities:
Depreciation $ 25,663 $ 9,010
Rent expense 5,944 2,841
Gross deferred tax liabilities 31,607 11,851
Deferred tax assets:
Deferred gains from sale and leaseback of aircraft 27,992 16,749
Accrued liabilities 6,264 4,905
Federal operating loss carryforwards 40,436 36,043
State operating loss carryforwards 4,406 4,095
AMT credit carryforwards 3,292 4,078
Other 5,265 4,821
Gross deferred tax assets 87,655 70,691
Valuation allowance (56,048) (58,840)
Net deferred tax assets 31,607 11,851
Total net deferred taxes $ – $ –
The Job Creation and Worker Assistance Act of 2002 passed by Congress in March 2002 resulted in a retroactive suspension of the alternative minimum tax (AMT) net operating loss
(NOL) 90 percent limitation. This legislation resulted in a tax benefit of $0.8 million in 2002. In accordance with Statement of Financial Accounting Standards No. 109, “Accounting for
Income Taxes,” the effect of changes in tax laws or rates is included in income in the period that includes the enactment date, resulting in recognition of the change in the first quarter
of 2002.
For financial reporting purposes, a valuation allowance has been recognized at December 31, 2002 and 2001, to reduce the net deferred income tax assets to zero. We have not
recognized any benefit from the future use of NOL carryforwards because management’s evaluation of all the available evidence in assessing the realizability of the tax benefits of such
NOL carryforwards indicates that the underlying assumptions of future profitable operations contain risks that do not provide sufficient assurance to recognize such tax benefits currently.
Although we produced operating profits in 2002 and 2001, we do not believe this and other positive evidence, including projections of future profitable operations, offset the effect of our
recent cumulative losses.
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