Chesapeake Energy 1995 Annual Report Download - page 47

Notes), and loans, investments and guarantees by the
Company and prohibits the payment of dividends on the
Company's Common Stock.
In February 1994, pending litigation against the
Company's subsidiary, COI, was settled. The agreement
required COT to pay $1.25 million, of which $250,000 plus
interest was paid in July 1994, with the balance payable
over six years in equal quarterly installments including
interest of 7%. Payment of the $1.25 million obligation
was secured by mortgages on several of the Company's
producing oil and gas properties. The note was paid in full
in June 1995.
4. CONTINGENCIES AND COMMITMENTS
The Company is currently involved in various routine
disputes incidental to its business operations and has
included $320,000 in accrued liabilities at June 30, 1995
for potential future costs. While it is not possible to
determine the ultimate disposition of these matters,
management, after consultation with legal counsel, is of the
opinion that the final resolution of all currently pending or
threatened litigation is not likely to have a material adverse
effect on the consolidated financial position or results of
operations of the Company when considering the
aforementioned provision.
The Company has employment contracts with its two
principal shareholders and its chief financial officer and
various other senior management personnel which provide
for annual base salaries, bonus compensation and various
benefits. The contracts provide for the continuation of
salary and benefits for the respective terms of the
agreements in the event of termination of employment
without cause. These agreements generally expire June 30,
1998.
In November 1994, Dorothy Knox Duncan Hughes v.
Chesapeake Operating, Inc. and Plains Marketing and
Transportation, Inc., was filed in the District Court of
Harris County, Texas. The plaintiff alleges, individually
and as representative of a class of royalty owners under wells
operated by the Company in Texas and Oklahoma, that the
Company has underpaid such royalty owners because the
monthly general and administrative fee it received from
defendant Plains Marketing and Transportation, Inc. and
other purchasers of crude oil had not been included in
calculating royalties due. The plaintiff seeks a
determination that a class exists; that the action is a proper
class action; that plaintiff is the proper class representative;
and that plaintiff and other members of the class are
entitled to recover actual damages of an unspecified
amount, attorney fees, exemplary damages (of an
unspecified amount), court costs and interest. The
Company intends to vigorously defend against plaintiff's
claims. The Company's motion to transfer venue of the
case to Fayette County was granted.
Due to the nature of the oil and gas business, the Company
and its subsidiaries are exposed to possible environmental
risks. The Company has implemented various policies and
procedures to avoid environmental contamination and risks
from environmental contamination. The Company is not
aware of any potential environmental issues or claims.
5. INCOME TAXES
As discussed in Note 1, the Company has adopted SFAS
No. 109. The components of the income tax provision for
each of the periods are as follows:
The effective income tax rate differed from the computed
"expected" federal income tax rate on earnings before
income taxes for the following reasons:
Deferred income taxes are provided to reflect temporary
differences in the basis of net assets for income tax and
YEARS ENDED JUNE 30, 1995 1994 1993
)$ IN THOUSANDS)
Computed "expected"
income tax provision
(benefit) $ 6,286 $ 1,753 $ (158)
Tax percentage
depletion (144) (780)
Other 157 277 59
$ 6,299 $ 1,250 $(99)
YEARS ENOED JUNE 30, 1995 1994 1993
($ IN THOUSANDS)
Current $$$
Deferred 6,299 1,250 (99)
Total $ 6,299 $ 1,250 $(99)
CHESAPEAKE ENERGY CORPORATION 45