PURSUING A RESERVES 
GROWTH STRATEGY

                                           1993 ANNUAL REPORT

Notes to Consolidated Financial Statements
Swift Energy Company and Subsidiaries

2. Provision for Income Taxes

 

In the fourth quarter of 1992, the Company elected to adopt SFAS No. 109, "Accounting for Income Taxes." The adoption was effective beginning January 1, 1992, and accordingly the cumulative effect of this change resulted in an increase in net income for 1992 of $915,000 or $.16 per share.

The Omnibus Budget Reconciliation Act of 1993 (the "Act") was enacted on August 10, 1993. The Act contains several changes to federal income tax provisions, including an increase in the highest corporate tax rate from 34% to 35%, for companies with taxable income in excess of $10,000,000. The effect of the Act on income tax expense for the year ended December 31, 1993, and the Company’s net deferred tax liability is not material.

The following is an analysis of the consolidated income tax provision:

Year ended December 31,
1993 1992 1991
-------------- -------------- --------------
Current $    533,298 $ 1,049,662 $ 306,259
Deferred 1,199,057 468,097 929,667
-------------- -------------- --------------
Total $ 1,732,355 $ 1,517,759 $ 1,235,926
========= ========= =========


There are differences between income taxes computed using the statutory rate (34% for 1993, 1992, and 1991) and the Company’s effective income tax rates (26.1%, 32.4%, and 33.0% for 1993, 1992, and 1991, respectively), primarily as the result of certain tax credits available to the Company. Reconciliations of income taxes computed using the statutory rate to the effective income tax rates are as follows:

1993 1992 1991
-------------- -------------- --------------
Income taxes computed at Federal statutory rate $ 2,253,727 $ 1,593,756 $ 1,274,572
State tax provisions, net of Federal benefits 149,002 44,880 ---
Nonconventional fuel source credit (553,651) (211,066) (38,706)
Depletion deductions in excess of basis (98,596) (14,014) (14,202)
Other, net (18,127) 104,203 14,262
-------------- -------------- --------------
Provision for income taxes $ 1,732,355 $ 1,517,759 $ 1,235,926
========= ========= =========


In 1991, the deferred provisions for income taxes result from the following timing differences in the recognition of revenues and expenses for financial statement and tax purposes:

Year Ended
December 31,
--------------------
1991
--------------------
Amounts expensed for tax purposes over amounts capitalized and
     amortized for financial statements, relating to:
        General and administrative expenses $ 317,126
        Oil and gas exploration and development costs 749,685
Depreciation, depletion and amortization for financial statements over
     amount for tax purposes 		(705,949)
Revenues from limited partnerships for financial statements over amount
     for tax purposes 		530,433
Alternative minimum tax carryforward (paid) 45,180
Other, net (6,808)
--------------------
Deferred Provision $ 929,667
==========

 

The tax effects of significant temporary differences representing the net deferred tax liability at December 31, 1993 and 1992, were as follows:

1993 1992
------------------- -------------------
Deferred tax assets:
   Alternative minimum tax credits $      786,774 $      654,697
   Other 231,292 76,736
------------------- -------------------
      Total deferred tax assets $   1,018,066 $      731,433
Deferred tax liabilities:
   Oil and gas properties $ 12,576,208 $ 11,217,376
   Other 637,527 510,669
------------------- --------------------
      Total deferred tax assets $ 13,213,735 $ 11,728,045
------------------- --------------------
Net deferred tax liability $ 12,195,669 $ 10,996,612
========== ==========

 

The Company did not record any valuation allowances against deferred tax assets at December 31, 1993.

At December 31, 1993, the Company had an alternative minimum tax carryforward of $786,774 indefinitely available to reduce future regular tax liability to the extent it exceeds the related tentative minimum tax otherwise due.

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