Chesapeake Energy 1999 Annual Report Download - page 49

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Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS 109"). SFAS 109 requires deferred tax liabilities or assets to 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 (Loss) Per Share
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128") requires presentation of
"basic" and "diluted" earnings per share, as defined, on the face of the statement of operations for all entities with
complex capital structures. SFAS 128 requires a reconciliation of the numerator and denominator of the basic and
diluted EPS computations. For 1998, the Transition Period and fiscal 1997, there was no difference between actual
weighted average shares outstanding, which are used in computing basic EPS, and diluted weighted average shares,
which are used in computing diluted EPS. Options to purchase 12.9 million, 11.3 million, 8.3 million and 7.9
million shares of common stock at weighted average exercise prices of $1.76, $1.86, $5.49 and $7.09 were
outstanding during 1999, 1998, the Transition Period and fiscal 1997 but were not included in the computation of
diluted EPS because the effect of these outstanding options would be antidilutive. A reconciliation for 1999 is as
follows:
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, 1999 and 1998 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, 1999 totaled $16.6 million and are being amortized over the
life of the senior notes.
-39-
Income
(Numeratorl Shares
(Denominator) Per Share
Amount
For the Year Ended December 31, 1999:
Basic EPS
Income available to common stockholders $16,555 97,077 S0 17
Effect of Dilutive Securities
Employee stock options 4,961
Diluted EPS
Income available to common stockholders
and assumed conversions $16555 l02M38 $0.16