Southwest Airlines 1997 Annual Report Download - page 49

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49
SOUTHWEST AIRLINES CO. ♥ FIVE SYMBOLS OF FREEDOM
9. INCOME TAXES
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. The components of deferred tax assets and
liabilities at December 31, 1997 and 1996 are as follows:
(IN THOUSANDS) 1997 1996
DEFERRED TAX LIABILITIES:
Accelerated depreciation $543,547 $467,372
Scheduled airframe maintenance 33,202 30,984
Other 83,607 78,195
Total deferred tax liabilities 660,356 576,551
DEFERRED TAX ASSETS:
Deferred gains from sale and leaseback of aircraft 112,659 114,514
Capital and operating leases 61,747 58,252
Alternative minimum tax credit carryforward - 6,019
Other 65,812 59,339
Total deferred tax assets 240,218 238,124
Net deferred tax liability $420,138 $338,427
The provision for income taxes is composed of the following:
(IN THOUSANDS) 1997 1996 1995
CURRENT:
Federal $102,938 $59,101 $64,420
State 14,535 7,671 9,947
Total current 117,473 66,772 74,367
DEFERRED:
Federal 75,990 60,967 44,580
State 5,721 6,286 3,567
Total deferred 81,711 67,253 48,147
$199,184 $134,025 $122,514
Southwest has received examination reports from the Internal Revenue Service (IRS)
proposing certain adjustments to Southwest’s income tax returns for 1989 through
1991. The adjustments relate to aircraft maintenance costs incurred 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