Chesapeake Energy 2000 Annual Report Download - page 108

Income Taxes
A reconciliation of the income tax expense or benefit, computed by applying the federal statutory rate to pre-
tax income or loss, to Gothic's effective income tax expense or benefit is as follows:
Deferred tax assets and liabilities are comprised of the following at December 31, 1999 and 2000:
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Net operating losses of approximately $180.3 million are available for future use against taxable income. These
net operating loss carryforwards ("NOL") expire in the years 2010 through 2019.
Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, in the event that a substantial
change in the ownership of Gothic Energy were to occur in the future (whether through the sale of stock by a
significant shareholder or shareholders, new issuances of stock by Gothic Energy, conversions, a redemption,
recapitalization, reorganization, any combination of the foregoing or any other method) so that ownership of more
than 50% of the value of Gothic Energy's capital stock changed during any three-year period, Gothic Energy's
ability to utilize its NOLs could be substantially limited.
Realization of the net deferred tax asset is dependent on generating sufficient taxable income in future periods.
As a result of significant losses in prior years, Gothic has recorded a 100% valuation allowance, as management
presently deems it is more likely than not that realization will not occur in the future.
Commitments and Contingencies
Gothic entered into an employment agreement with its President effective January 1, 1999. The President
received a base salary of $225,000 per year. In addition, he was to receive a cash bonus as was determined by
Gothic's Board of Directors. The President was also entitled to participate in such incentive compensation and
benefit programs as Gothic made available. The term of the agreement was for a period of three years and at the end
of the first year and at the end of each succeeding year the agreement was automatically extended for one year such
that at the end of each year there would automatically be three years remaining on the term of the agreement. The
President could terminate the agreement at the end of the initial term and any succeeding term on not less than six
months notice. In the event the employment agreement was terminated by Gothic (other than for cause, as
defined), the President was entitled to receive a payment representing all salary due under the remaining full term of
his agreement and Gothic was obligated to continue his medical insurance and other benefits provided under the
Deferred tax assets:
Gas balancing liability
Net operating loss carryforwards
Depletion carryforwards
Tax over book basis of property and equipment
Accrued wages
Gross deferred tax assets
Deferred tax liabilities:
Deferred lease operating expenses
Gross deferred tax liabilities
Net deferred tax assets
Valuation allowance
1999 2000
$
($ in thousands)
1,386 $1,077
68,448 68,436
257 257
2,627 426
119
72,837
(556)
70,196
(470)
(556)
72,281
(72,281)
(470)
69,726
(69,726)
1998 1999 2000
($ in thousands)
Income tax (expense) benefit computed at the statutoly rate (34%) $ 44,094 $ 5,885 $(2,068)
State income taxes, net of federal 5,135 685 (260)
Change in valuation allowance (49,229) (6,570) 2,555
Other (227)
Income tax (expense) benefit