Chesapeake Energy 1998 Annual Report Download - page 48

In connection with the Company's acquisition of AnSon Production Corporation ("AnSon") in December 1997,
which was accounted for using the purchase method, the purchase price of approximately $43 million was allocated
to the fair value of assets acquired. Based upon reserve estimates as of December 31, 1997, the portion of the
purchase price which was allocated to evaluated oil and gas properties exceeded the associated discounted future net
revenues from AnSon's estimated proved reserves by approximately $14 million
Oil and Gas Depreciation, Depletion and Amortization. DD&A of oil and gas properties for the Transition
Period was $60.4 million, $24.2 million higher than the Prior Period's expense of $36.2 million The expense in the
Transition Period was computed prior to the writedown from the impainnent of oil and gas properties charge. The
average DD&A rate per Mcfe increased to $1.57 in the Transition Period compared to $0.99 in the Prior Period.
Depreciation and Amortization of Other Assets. D&A of other assets increased to $2 4 million in the Transition
Period, compared to $1.8 million in the Prior Period. This increase was caused by increased investments in
depreciable buildings and equipment and increased amortization of debt issuance costs as a result of the issuance of
senior notes in March 1997.
General and Administrative. G&A expenses, which are net of capitalized internal payroll and non-payroll
expenses (see Note 11 of Notes to Consolidated Financial Statements), were $5.8 million in the Transition Period,
up 56% from $3.7 million in the Prior Period. The increase in the Transition Period compared t. the Prior Period
results primarily from increased personnel expenses required by the Company's growth and industry wage inflation.
The Company capitalized $2.4 million of internal costs in the Transition Period directly related to the Company's oil
and gas exploration and development efforts, compared to $11 million in the Prior Period.
Interest and Other Income. Interest and other income for the Transition Period was $79.0 million compared to
$2.5 million in the Prior Period. During the Transition Period, the Company realized a gain on the sale of its Bayard
common stock of $73 8 million, the most significant component of interest and other income.
Interest Expense. Interest expense increased to $17.4 million in the Transition Period, compared to $6.2 million
in the Prior Period. The increase was due primarily to the issuance of $300 million of senior notes in March 1997.
In addition to the interest expense reported, the company capitalized $5 1 million of interest during the Transition
Period, compared to $7.6 million capitalized in the Prior Period.
Provision (Benefit) for Income Taxes. The Company recorded no income taxes for the Transition Period,
compared to income tax expense of $14.3 million in the Prior Period, before consideration of the $3 7 million tax
benefit associated with an extraordinary loss from the early extinguishment of debt.
At December 31, 1997, the Company had a net operating loss carryforward of approximately $337 million for
regular federal income taxes which will expire in future years beginning in 2007. Management believed that it
could not be demonstrated at that time that it was more likely than not that the deferred income tax assets,
comprised primarily of the net operating loss carryforward, would be realizable in future years, and therefore ,a
valuation allowance of $77.9 million was recorded. No deferred tax benefit related to the exercise of employee
stock options was allocated to additional paid-in capital in the Transition Period.
Fiscal Years Ended June 30. 1997 and 1996
General. For the fiscal year ended June 30, 1997, the Company realized a net loss of $183.4 million, or $2.79
per common share, on total revenues of $280.3 million. This compares to net income of $23.4 million, or $0.40 per
common share, on total revenues of $149.4 million in 1996. The loss in fiscal 1997 resulted from a $236 million,
asset writedown recorded in the fourth quarter under the full-cost method of accounting. See "Impainnent of Oil
and Gas Properties".
Oil and Gas Sales. During fiscal 1997, oil and gas sales increased 74% to $192.9 million versus $110 8'million
for fiscal 1996. The increase in oil and gas sales resulted primarily from strong growth in production volumes and
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