Chesapeake Energy 1998 Annual Report Download - page 68

Gas Imbalances Revenue Recognition
Revenues from the sale of oil and gas production are recognized when title passes, net of royalties. The
Company follows the "sales method" of accounting for its gas revenue whereby the Company recognizes sales
revenue on all 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 remaining gas reserves on the underlying properties. The Company's net imbalance positions at
December 31, 1998 and 1997 and June 30, 1997 were not material.
Hedging
The Company periodically uses certain instruments to hedge its exposure to price fluctuations on oil and natural
gas transactions and interest rates. Recognized gains and losses on hedge contracts are reported as a component of
the related transaction. Results of oil and gas hedging transactions are reflected in oil and gas sales to the extent
related to the Company's oil and gas production, in oil and gas marketing sales to the extent related to the
Company's marketing activities, and in interest expense to the extent so related.
Debt Issue Costs
Included in other assets are costs associated with the issuance of the Senior Notes. The remaining unamortized
costs on these issuances of Senior Notes at December 31, 1998 totaled $19.7 million and are being amortized over
the life of the Senior Notes.
Comprehensive Income
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. This statement establishes
rules for the reporting of comprehensive income and its components. Comprehensive income consists of net
income and foreign currency translation adjustments and is presented in the Consolidated Statements of
Stockholders' Equity (Deficit) and Comprehensive Income (Loss). The adoption of SFAS 130 had no impact on
total stockholders' equity. Prior year fmancial statements have been reclassified to conform to the SFAS 130
requirements. All balance sheet accounts of foreign operations are translated into U.S. dollars at the year-end rate of
exchange and statement of operations items are translated at the weighted average exchange rates for the year.
Reclassflcations
Certain reclassifications have been made to the consolidated fmancial statements for the Transition Period and
the years ended June 30, 1997 and 1996 to conform to the presentation used for the December 31, 1998
consolidated fmancial statements.
2. Senior Notes
On April 22, 1998, the Company issued $500 million principal amount of 9.625% Senior Notes due 2005
("9.625% Senior Notes"). The 9.625% Senior Notes are redeemable at the option of the Company at any time on or
after May 1, 2002 at the redemption prices set forth in the indenture or at the make-whole prices, as set forth in the
indenture, if redeemed prior to May 1, 2002. The Company may also redeem at its option up to $167 million of the
9.625% Senior Notes at 109.625% of their principal amount with the proceeds of an equity offering completed prior
to May 1,2001.
On March 17, 1997, the Company issued $150 million principal amount of 7.875% Senior Notes due 2004
("7.875% Senior Notes"). The 7.875% Senior Notes are redeemable at the option of the Company at any time prior
to March 15, 2004 at the make-whole prices determined in accordance with the indenture.
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