Southwest Airlines 1995 Annual Report Download - page 38

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38
The provision for income taxes before the cumulative effect of accounting changes is comprised
of the following (in thousands):
1995 1994 1993
Current:
Federal $64,420 $59,603 $46,744
State 9,947 10,702 5,409
Total current 74,367 70,305 52,153
Deferred:
Federal 44,580 46,470 48,524
State 3,567 3,417 4,676
Total deferred 48,147 49,887 53,200
$122,514 $120,192 $105,353
Southwest has received examination reports from the Internal Revenue Service proposing
certain adjustments to Southwest’s income tax returns for 1987 through 1991. The adjustments
relate to certain types of aircraft financings consummated by Southwest, as well as other
members of the aviation industry during that time period. Southwest intends to vigorously protest
the adjustments proposed with which it does not agree. The industry’s difference with the IRS
involves complex issues of law and fact that are likely to take a substantial period of time to
resolve. Management believes that final resolution of such protest will not have a materially
adverse effect upon the results of operations of Southwest.
The effective tax rate on income before cumulative effect of accounting changes differed from
the federal income tax statutory rate for the following reasons (in thousands):
1995 1994 1993
Tax at statutory
U.S. tax rates $106,799 $104,833 $90,873
Nondeductible items 4,488 3,689 1,361
State income taxes,
net of federal benefit8,784 9,177 6,632
Effect of increase
in U.S. statutory rate - - 3,957
Other, net 2,443 2,493 2,530
Total income tax
provision $122,514 $120,192 $105,353
12. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed based on the weighted
average number of common and common equivalent shares outstanding (148,850,512 in 1995,
147,305,374 in 1994, and 147,144,568 in 1993). Fully diluted earnings per share have not been
presented as the fully dilutive effect of shares issuable upon the exercise of options under the
Company’s Stock Option Plans is not material.