Chesapeake Energy 1995 Annual Report Download - page 28

to their respective scheduled payment dates with proceeds
from the 12% Senior Notes, offset by an increase in D&A
as a result of increased investments in depreciable service
equipment and a full year of amortization of debt issuance
costs as a result of the issuance of the 12% Senior Notes in
March 1994.
GENERAL AND ADMINISTRATIVE, NET General and
administrative ("G&A") expenses, which are net of
capitalized internal payroll and non-payroll expenses, were
$3.6 million in fiscal 1995, up 16% from $3.1 million in
fiscal 1994, and constant with $3.6 million in fiscal 1993.
On a per unit-of-production basis, G&A expenses declined
to $0.11 per Mcfe in fiscal 1995 from $0.31 per Mcfe in
fiscal 1994 and $0.84 per Mcfe in fiscal 1993. The increase
in total G&A in fiscal 1995 and 1994 resulted primarily
from increased personnel expenses required by the
company's growth. G&As expenses in fiscal 1993 were
higher than in 1994 due to non-capitalized expenses related
to Chesapeake's initial public offering in 1993.
PROVISION FOR LEGAL AND OTHER SETTLEMENTS During the
fourth quarter of fiscal 1993, the company recorded a
charge of $1.3 million for legal and other settlements. No
such charges were incurred in fiscal 1994 or 1995.
INTEREST AND OTHER As a result of Chesapeake's higher debt
levels, interest and other expense increased to $6.6 million
in fiscal year 1995 as compared to $2.7 million in fiscal
1994 and $2.3 million in fiscal 1993.
INCOME TAX EXPENSE Chesapeake recorded income tax
expense of $6.3 million in fiscal 1995, compared to $1.3
million in fiscal 1994, and compared to a benefit in 1993 of
$99,000. All of the income tax expense in fiscal 1995 and
1994 was deferred due to a current year operating loss on a
taxable basis resulting from the company's active drilling
program. The effective tax rate of 35% in fiscal 1995
compares to a tax rate of 24% in 1994 and 21% in 1993.
LIQUIDITY AND CAPITAL RESOURCES
10.5% SENIOR NOTES On May 25, 1995, Chesapeake issued
$90 million of 10.5% Senior Notes due 2002 (the "10.5%
Senior Notes"). The 10.5% Senior Note Indenture provides
for semiannual interest payments commencing December
1, 1995 with the principal due June 1, 2002. The 10.5%
Senior Notes are redeemable at the option of the company
at any time on or after June 1, 1999. Chesapeake may also
redeem at its option at any time prior to June 1, 1998 up to
$30 million of the 10.5% Senior Notes with the proceeds
from an equity offering.
12.0% SENIOR NOTES On March 31, 1994, Chesapeake
issued $47.5 million of 12% Senior Notes due 2001 (the
"12% Senior Notes") and Warrants to purchase 973,750
shares of the company's Common Stock at $01 per warrant
($005 per share). The 12% Senior Note Indenture
provides for semiannual interest payments, which
commenced September 1, 1994, and for mandatory
redemption of $11.9 million on each of March 1, 1998,
1999 and 2000.
All of Chesapeake's subsidiaries except Chesapeake Gas
Development Corporation ("CGDC") have fully and
unconditionally guaranteed on a joint and several basis
both issues of senior notes, and the securities of the
guaranteeing subsidiaries have been pledged to secure
obligations under the 12% Senior Notes.
The 12% and 10.5% Senior Note Indentures contain
certain covenants, including covenants limiting the
company and the guaranteeing subsidiaries with respect to
asset sales; restricted payments; the incurrence of additional
indebtedness and the issuance of preferred stock; liens; sale
and leaseback transactions; lines of business; dividend and
other payment restrictions affecting guaranteeing
subsidiaries; mergers or consolidations; and transactions
with affiliates. Chesapeake is obligated to repurchase the
12% and 10.5% Senior Notes in the event of a change of
control, the sale of certain assets, or Gilure to maintain a
specified ratio of assets to debt.
WORKING CAPITAL Chesapeake had working capital of $31.5
million at June 30, 1995, compared to $2.4 million at June
30, 1994, and a working capital deficit of $9.9 million at
June 30, 1993. The increase in working capital during
fiscal 1995 is primarily attributable to the issuance of the
10.5% Senior Notes in May 1995. Additionally, the
Company has an unused line of credit available from Union
Bank of approximately $25 million.
OTHER CREDIT FACILITIES The company maintains a limited
recourse bank facility currently in the amount of $11
26 CHESAPEAKE ENERGY CORPORATION