Chesapeake Energy 1999 Annual Report Download - page 35

Depreciation and Amortization of Other Assets. Depreciation and amortization ("D&A") of other assets was
$7.8 million in 1999, compared to $8.1 million in 1998 and $4.4 million in 1997. The increase in 1998 compared to
1997 was caused by increased investments in depreciable buildings and equipment and increased amortization of
debt issuance costs as a result of the issuance of senior notes in April 1998.
General and Administrative. General and administrative ("G&A") expenses, which are net of capitalized internal
payroll and non-payroll expenses (see Note 11 of Notes to Consolidated Financial Statements), were $13.5 million in
1999, $19.9 million in 1998 and $10.9 million in 1997. The decrease in 1999 compared to 1998 was due primarily
to various actions taken to lower corporate overhead, including staff reductions and office closings which occurred in
late 1998 and early 1999. The increase in 1998 compared to 1997 is due primarily to increased personnel expenses
required by the Company's growth and industry wage inflation. The Company capitalized $2.7 million, $5.3 million
and $5.3 million of internal costs in 1999, 1998 and 1997, respectively, directly related to the Company's oil and gas
exploration and development efforts. The Company anticipates that G&A costs for 2000 per Mcfe will remain at
approximately the same level as 1999.
Interest and Other Income. Interest and other income for 1999 was $8.6 million compared to $3.9 million in
1998, and $87.7 million in 1997. The increase from 1998 to 1999 was due primarily to gains on sales of various
non-core assets during 1999. During 1997, the Company realized a gain on the sale of its Bayard common stock of
$73.8 million, the most significant component of interest and other income.
Interest Expense. Interest expense increased to $81.1 million in 1999, compared to $68.2 million in 1998 and
$29.8 million in 1997, The increase in 1999 is due primarily to a full yearof interest on the Company's $500 million
senior notes. The increase in 1998 compared to 1997 was due primarily to the issuance of $500 million of senior
notes in April 1998. In addition to the interest expense reported, the Company capitalized $3.5 million of interest
during 1999, compared to $6.5 million capitalized in 1998, and $10.4 million capitalized in 1997. The Company
anticipates that capitalized interest for 2000 will be between $3 million and $4 million.
Provision (Benefit) for Income Taxes. The Company recorded income taxes of $1.8 million in 1999 compared to
$0 in 1998 and an income tax benefit of $17.9 million in 1997. The income tax expense recorded in 1999 is related
entirely to the Company's Canadian operations.
At December 31, 1999, the Company had a U.S. net operating loss carryforward of approximately $613 million
for regular federal income taxes which will expire in future years beginning in 2007. Management believes that it
cannot be demonstrated at this time that it is more likely than not that the deferred income tax assets, comprised
primarily of the net operating loss carryforwards generated for U.S. purposes, will be realizable in future years, and
therefore a valuation allowance of $442 million has been recorded. The Companydoes not expect to record any net
income tax expense related to its U.S. operations in 2000 based on informationavailable at this time.
Liquidity and Capital Resources
Years Ended December31, 1999, 1998 and 1997
Cash Flows from Operating Activities. Cash provided by operating activities (inclusive of changes in working
capital) was $145.0 million in 1999, compared to $94.6 million in 1998 and $181.3 million in 1997. The increase of
$50.4 million from 1998 to 1999 was due primarily to increased oil and gas revenues. The decrease of $86 7 million
from 1997 to 1998 was due primarily to reduced operating income resulting from significant decreases in average oil
and gas prices between periods, as well as significant increases in G&A expenses and interest expense.
Cash Flows from Investing Activities. Cash used in investing activities decreased to $159.8 million in 1999,
compared to $548.1 million in 1998 and $476.2 million in 1997. During 1999, the Company invested $153.3
million for exploration and development drilling, $49.9 million for the acquisition of oil and gas properties, and
received $45.6 million related to divesitures of oil and gas properties. During 1998, $279.9 million was used to
acquire certain oil and gas properties and companies with oil and gas reserves. However, the increase in cash used to
acquire oil and gas properties was partially offset by reduced expenditures during 1998 for exploratory and
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