Chesapeake Energy 2000 Annual Report Download - page 71

In the fourth quarter of 2000, we eliminated our valuation allowance resulting in the recognition of a $265
million income tax benefit. This resulted in an increase to 2000 net income of $265 million, or $1.75 per diluted
share. Based upon recent results of operations and anticipated improvement in Chesapeake's outlook for sustained
profitability, we believe that it is more likely than not that we will generate sufficient future taxable income to realize
the tax benefits associated with our NOL carryforwards prior to their expiration.
At December 31, 2000, Chesapeake had U.S. regular tax net operating loss carryforwards of approximately
$567 million and a U.S. alternative minimum tax net operating loss carryforward of approximately $301 million
The U.S. loss carryforward amounts will expire during the years 2009 through 2019. We also had a U.S. percentage
depletion carryforward of approximately $5 million at December 31, 2000, which is available to offset Chesapeake's
future U.S. federal income and has no expiration date. A summary of our NOLs follows:
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In the event of an ownership change, Section 382 of the Internal Revenue Code imposes an annual limitation
on the amount of a corporation's taxable income that can be offset by these carryforwards. The limitation is
generally equal to the product of (i) the fair market value of the equity of the company multiplied by (ii) a
percentage approximately equivalent to the yield on long-term tax exempt bonds during the month in which an
ownership change occurs. Of the $567 million NOLs and $301 million AMT NOLs, the utilization of $254 million
and the utilization of $25 million, respectively, are subject to annual limitations under Section 382. Therefore, $313
million of NOLs and $276 million of the AMT NOLs are not subject to the limitation. The utilization of $254
million of the NOLs and $25 million of the AMT NOLs subject to the Section 382 limitation are both limited to
approximately $26 million each taxable year.
Related Party Transactions
Certain directors, shareholders and employees of Chesapeake have acquired working interests in certain of our
oil and gas properties. The owners of such working interests are required to pay their proportionate share of all costs.
As of December 31, 1999 and 2000, we had accounts receivable from related parties, primarily related to such
participation, of $4.6 million and $4.4 million, respectively.
As of December 31, 1998, the chief executive officer and chief operating officer of Chesapeake had notes
payable to Chesapeake Energy Marketing, Inc. in the principal amount of $9.9 million. In November 1999, the
chief executive officer and the chief operating officer tendered 2,320,107 shares of Chesapeake common stock in full
satisfaction of the notes, which had a combined outstanding balance of $7.6 million The common stock was valued
at $3.29 per share, which was the market value of the stock at the time of the transaction.
During 1998, 1999 and 2000, we incurred legal expenses of $493,000, $398,000 and $439,000, respectively, for
legal services provided by a law firm of which a director is a member.
Employee Benefit Plans
We maintain the Chesapeake Energy Corporation Savings and Incentive Stock Bonus Plan, a 401(k) profit
sharing plan. Eligible employees may make voluntary contributions to the plan which Chesapeake matches up to
10% of the employee's annual salary with Chesapeake's common stock purchased in the open-market. The amount
of employee contribution is limited as specified in the plan. We may, at our discretion, make additional contributions
to the plan. We contributed $1,359,000, $1,163,000 and $1,490,000 to the plan during 1998, 1999 and 2000,
respectively.
NOL AMT NOL
(S in thousands)
Expiration Date:
December 31, 2009 $ 19,099 $
December 31, 2010 41,494
December 31, 2011 168,186 17,559
December 31, 2012 48,229
December 31, 2018 154,642 146,840
December 31, 2019 135,697 137,094
Total $567,347 $301,493