Chesapeake Energy 1997 Annual Report Download - page 64

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Income Taxes
The components of the income tax provision (benefit) for each of the periods are as follows:
Year Ended June 30,
The effective income tax rate differed from the computed "expected" federal income tax rate on earnings
before income taxes for the following reasons:
Deferred income taxes are provided to reflect temporary differences in the basis of net assets for income
tax and financial reporting purposes. The tax effected temporary differences and tax loss carryforwards which
comprise deferred taxes are as follows:
1997 1996 1995
SFAS 109 requires that the Company record a valuation allowance when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. In the fourth quarter of fiscal 1997, the
Company recorded a $236 million write-down related to the impairment of oil and gas properties. This write-
down and significant tax net operating loss carryforwards (caused primarily by expensing intangible drilling
costs for tax purposes) result in a net deferred tax asset at June 30, 1997. Management believes it is more
likely than not that the Company will generate future tax net operating losses for at least the next five years,
based in part on the Company's continued drilling efforts. Therefore, the Company has recorded a valuation
allowance equal to the net deferred tax asset.
47
Year Ended June 30,
1997 1996 1995
($ in thousands)
Computed "expected" income tax provision (benefit) $(63,116) $12,673 $6,286
Tax percentage depletion (294) (238) (144)
Valuation allowance 64,116
State income taxes and other (4,279) 419 157
$ (3,573) $12,854 $6,299
Deferred tax liabilities:
Acquisition, exploration and development costs and related
Year Ended June 30,
1997 1996 1995
($ in thousands)
depreciation, depletion and amortization $(49,831) $(63,725) $(31,220)
Deferred tax assets:
Net operating loss carryforwards 112,889 50,776 23,414
Percentage depletion canyforward 1,058 764 526
113,947 51,540 23,940
Net deferred tax asset (liability) $ 64,116 $(12,185) $ (7,280)
Less: Valuation allowance (64,116)
Total deferred tax asset (liability) $-$(12,185) $ (7,280)
(S in thousands)
Current $$
Deferred (3,573) 12,854 6,299
Total $(3,573) $12,854 $6,299