Chesapeake Energy 1998 Annual Report Download - page 67

Service Operations
Certain subsidiaries of the Company performed contract services on wells the Company operated as well as for
third parties until June 30, 1996. Oil and gas service operations revenues and costs and expenses reflected in the
accompanying consolidated statement of operations for fiscal 1996 include amounts derived from certain of the
contractual services provided. The Company's economic interest in its oil and gas properties was not affected by the
performance of these contractual services and all intercompany profits have been eliminated.
On June 30, 1996, Peak USA Energy Services, Ltd., a limited partnership ("Peak"), was formed by Peak Oilfield
Services Company (a joint venture between Cook Inlet Region, Inc. and Nabors Industries, Inc.) and the Company
for the purpose of purchasing the Company's oilfield service assets and providing rig moving, transportation and
related site construction services. The Company sold its service company assets to Peak for $6 4 million and
simultaneously invested $2.5 million in exchange for a 33.3% partnership interest in Peak. This transaction resulted
in recognition of a $1 8 million pre-tax gain during the fourth fiscal quarter of 1996 reported in interest and other. A
deferred gain from the sale of service company assets of $0.9 million was amortized to income over the estimated
useful lives of the Peak assets. The Company sold its partnership interest in Peak in June 1998.
Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS 109"). SFAS 109 requires deferred tax liabilities or ssets to be recognized for the anticipated future tax
effects of temporary differences that arise as a result of the differences in the carrying amounts and the tax bases of
assets and liabilities.
Net Income (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SPAS 128"). SFAS 128 requires presentation of "basic" and "diluted"
earnings per share, as defined, on the face of the statement of operations for all entities with complex capital
structures. SPAS 128 is effective for fmancial statements issued for periods ending after December 15, 1997 and
requires restatement of all prior period earnings per share amounts. The Company has adopted SPAS 128 and has
restated all prior periods presented.
SFAS 128 requires a reconciliation of the numerators and denominators of the basic and diluted EPS
computations. For 1998, the Transition Period and fiscal 1997, there was no difference between actual weighted
average shares outstanding, which are used in computing basic EPS, and diluted weighted average shares, which are
used in computing diluted EPS. Options to purchase 11.3 million, 8.3 million and 7.9 million shares of common
stock at weighted average exercise prices of $1.86, $5.49 and $7.09 were outstanding during 1998, the Transition
Period and fiscal 1997 but were not included in the computation of diluted EPS because the effect of these
outstanding options would be antidilutive. A reconciliation for fiscal 1996 is as follows:
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Income
(Numerator) Shares
(Denominator) Per Share
Amount
For the Year Ended June 30, 1996:
Basic EPS
Income available to common stockholders $23,355 54,564 $0.43
Effect of Dilutive Securities
Employee stock options 3,778
Diluted EPS
Income available to common stockholders
and assumed conversions $23,355 58,342 $0.40