Chesapeake Energy 1993 Annual Report Download - page 17

General andAdmin istrative, Net General and administrative costs, which exclude amounts capitalized.
as direct oil and gas acquisition, exploration and development costs, totalled $3.9 million, $3.4 million and
$2 1 million in fiscal 1993 1992 and 1991 respectively reflecting a 15% increase in 1993 as compared to
1992 and a 185% increase in relation to amounts incurred in fiscal 1991. The upward trend in generaland
administrative cOsts during the three-year period is primarily attributed to personnel additions and related
costs of operations necessitated by the growth of the Company during the period Further the increase in
fiscal 1993 is partially attributed to non-capitalized travel, legal, accounting and engineering costs incurred
in preparation for the Company's initial public offering of its Common Stock, The Company anticipates that
general and administrative costs in fiscal 1994 will remain fairly consistent with the prior year, absent a
significant change in the operations of the Company As a result of the adoption of the full cost method of
accounting general and administrative costs for fiscal 1992 and 1991 as reflected in the financial statements
included in this report increased over those amounts previously reported under the successful efforts method
of accounting The incremental increase in general and administrative expenses results primarily from
differences inherent in the two accounting methods the more significant of which are the treatment of
administrative overhead reimbursements and the 'treatment of direct general and administrative expenses
associated with property acquisition, exploration and development activities.Additionally, some expenses.
previously allocated to and reported as service operations costs and expenses have been reclassified as
general and administrative costs.
Provision for Legal and Otber Settlements. During the fourth quarter of 1993, the Company tecorded
a charge of $1 3 million for legal and other settlements This amount includes provisions for the settlement
of three class action suits flied in the third quarter of fiscal 1993 related expenses and other matters No
provision has been made for the Plotner Litigation as the Company has been indemnified by Messrs
McClendon and Ward against any liability for the judgment rendered therein and expenses for the appeal.
Interest and Other Interest cost to the Company is a function of outstanding indebtedness and the
average interest rate on that indebtedness Interest and other costs totalled $2 3 million in fiscal 1993 which
compared to $2 6 million in fiscal 1992 Fiscal 1993 interest costs decreased from the fiscal 1992 amount
primarily as a result of the capitalization of approximately $192 000 and changes in the Company s capital
structure. Otherwise, interest costs were fairly constant between the two years. The fiscai1991 interest aiici
other balance of $317 000 reflects lower average outstanding levels of indebtedness Barring increases in
interest rates or higher levels of borrowing the amount of interest incurred in fiscal 1994 is anticipated to
decrease as outstanding indebtedness is reduced
Income Tax Expense (Benefit) The Company recorded an income tax benefit of $99 000 on a pre tax
loss of $464,000 for the fiscal year ended June 30 1993 This compares with an income tax provision in fiscal
1992 of $1 3 million on pre tax income of $2 7 million and $243 000 of income tax accrued on $705 000 of
pre tax earnings in fiscal 1991 The unusually high relationship of tax burden to financial pre tax income in
fiscal 1992 results from partnership losses incurred by Chesapeake Exploration Company prior to the
formation of the Company which are included in financial income but for which no tax benefit is available
to the Company
Liquidity and Capital Resources
EznancrngActzvztzes The Company s initial public offering in February 1993 provided the Company with
net proceeds of $25 2 million which were used to reduce indebtedness to TCW and other lenders including
reduction of accounts payable and to provide working capital for the continued development of the
Company s proved undeveloped oil and gas assets By mid April 1993 the Company had fully paid its
indebtedness to TCW using proceeds from the Company s new bank credit facility and proceeds from the
initial public offering:
In December 1992, the Company issued 576,923 shares Of its 9% Convertible Preferred Stock to TCW
in exchange for a $7.5 million reduction in the Company's indebtedness to 1GW. Previously, the Company
had issued warrants to TCW to purchase 312,001 shares of Common Stock atan exercise price of $4.17 per
share TCW was also granted registration rights with respect to shares of the Company s Common Stock
issuable upon conversion of Preferred Stock and exercise of the warrants.