Chesapeake Energy 1994 Annual Report Download - page 33

accelerated methods over the estimated useful lives of the
assets, which range from 3 to 30 years.
LEASES The company leases certain office facilities under
an operating lease expiring in August 1996. Included in
service properties, equipment and other in the consolidated
balance sheets is computer equipment, software, and
certain other office equipment held under capital leases.
Minimum lease payments under these operating and
capital leases are as follows:
CAPITALIZED INTEREST During fiscal 1994, 1993 and 1992,
interest of approximately $356,000, $192,000 and $0 was
capitalized on significant investments in unproved
properties that are not being currently depreciated,
depleted, or amortized and on which exploration or
development activities are in progress.
SERVICE OPERATIONS Certain subsidiaries of the company
perform contractual services on wells the company operates
as well as for third parties. Oil and gas service operations
revenues and costs and expenses reflected in the
accompanying consolidated statements of operations
include amounts derived from certain of the contractual
services provided. The company's economic interest in its
oil and gas properties is not affected by the performance of
these contractual services and all intercompany profits have
been eliminated.
CONCENTRATION OF CREDIT RISK The company operates
exclusively in the oil and gas industry. The company's joint
interest billings and oil and gas sales receivables represent
substantially all of the balance included in trade accounts
receivable in the accompanying balance sheets.
INCOME TAXES Except for CEX, the Combined Entities
were C Corporations which filed separate income tax
returns prior to the Combination. CEX is a partnership
and, accordingly, its taxable income or loss for periods prior
to the Combination was allocated to its individual partners
and reported in their income tax returns. Subsequent to the
Combination, the company has filed a consolidated federal
income tax return.
The company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires deferred tax
liabilities or assets 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 PER SHARE Primary earnings per share for all
periods have been computed based upon the weighted
average number of shares outstanding after giving
retroactive effect to the 1 .8 for 1 stock split, the 2,808,000
common shares issued in the Combination, the 2,300,000
common shares issued in the initial public offering, the
common stock equivalents arising from the warrants issued
to TCW on July 2, 1992, the common stock equivalents
from the warrants issued to Belco, common stock warrants
issued in connection with the Senior Note Offering (see
Note 2) on March 31, 1994, and the common stock
equivalents arising from the employee stock options
granted in fiscal 1994 and 1993. Computations of primary
and fully diluted earnings per share have not given effect to
common stock equivalents or other contingent issuances
for any period in which their inclusion would have the
effect of increasing the earnings per share amount or
decreasing the loss per share amount otherwise computed.
Dilutive options or warrants which are issued during a
period or which expire or are cancelled during a period are
reflected in both primary and fully diluted earnings per
share computations for the time they were outstanding
during the period being reported upon.
GAS IMBALANCES The company follows the "sales
method" of accounting for its oil and gas revenue whereby
the company recognizes sales revenue on all oil or gas sold
to its purchasers, regardless of whether the sales are
proportionate to the company's ownership in the property.
A liability is recognized only to the extent that the
company has a net imbalance in excess of the reserves on
the underlying properties. The company's net imbalance
positions at June 30, 1994 and 1993 were not material.
RECLASSIFICATIONS Certain reclassifications have been
made to the consolidated financial statements for the years
CAPITAL LEASES OPERATING LEASES
1995 $ 76,573 $54,150
1996 76,573 64,980
1997 69,444 10,830
1998 62,316
1999 15,233
Total minimum
lease payments $ 300,139 $ 129,960
Less: amount
relating to interest 72,251
Present value of
minimum payments $ 227,888
CHESAPEAKE ENERGY CORPORATION 31