Chesapeake Energy 1999 Annual Report Download - page 61

Years Ended Six Months Ended Year Ended
December 31, December 31, June 30,
1999 1998 1997 1997
(S in thousands)
Current $$$$
Deferred 1,764 (3.573)
Total $1.764 $$ (3.573)
The effective income tax expense (benefit) differed from the computed "expected" federal income tax expense
(benefit) on earnings before income taxes for the following reasons:
Years Ended Six Months Ended Year Ended
December 31, December 31, June 30,
1999 1998 1997 1997
(S in thousands)
Computed "expected' income tax
provision (benefit) $12,720 $ (322,182) $(11,051) $ (63,116)
Tax percentage depletion (240) (430) (48) (294)
Change in valuation allowance (10,956) 380,969 13,818 64,116
State income taxes and other 240 (58,357) (2.7 19) (4.279)
81,764 $$$(3.573)
Deferred income taxes are provided to reflect temporary differences in the basis of net assets for income tax and
fmancial reporting purposes. The tax effected temporary differences and tax loss carryforwards which comprise
deferred taxes are as follows:
SFAS 109 requires that the Company record a valuation allowance when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. In 1998, the Company recorded an $826 million
writedown related to the impairment of oil and gas properties. The writedown and significant tax net operating loss
carryforwards (caused primarily by expensing intangible drilling costs for tax purposes) resulted in a net deferred tax
asset at December 31, 1999 and 1998. The Company expects to generate future U.S. tax net operating losses for the
foreseeable future. Management has determined that it is more likely than not that the net U.S. deferred tax assets
will not be realized and has recorded a valuation allowance equal to the net U.S. deferred tax asset.
At December 31, 1998, $5.9 million of the valuation allowance wa related to the Company's Canadian deferred
tax assets. During 1999, this valuation allowance was eliminated as part of a purchase pricereallocation related to a
1998 acquisition.
At December 31, 1999, the Company had a U.S. regular tax net operating loss carryforward of approximately
$613 million and a U.S. alternative minimum tax net operating loss carryforward of approximately $267 million.
The U.S. loss carryforward amounts will expire during the years 2007 through 2019. The Company also had a U.S.
percentage depletion carryforward of approximately $5 million at December 31, 1999, which is available to offset
future U.S. federal income taxes payable and has no expiration date.
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Deferred tax liabilities:
Acquisition, exploration and development
costs and related depreciation, depletion and
amortization
Deferred tax assets:
Acquisition, exploration and development costs
and related depreciation, depletion and
amortization
Net operating loss carryforwards
Percentage depletion carryforward
Net deferred tax asset (liability)
Less: Valuation allowance
Total deferred tax asset (liability)
Years Ended
December 31,
1999 1998
$
(S in thousands)
(13 251) $
218,728
228,279
1,776
242,765
214,602
1,536
448,783 458,903
435,532
(442,016) 458,903
(458,903)
8(6.484)